Next Recession Will See Aggressive QE – US Fed

The United States Federal Reserve Chairman Jerome Powell addressed Congressional committees on Tuesday and Wednesday and updated American politicians on the current state of the US economy. Mr Powell struck an optimistic tone during the presentation and question sessions, stating the American economy was “resilient” after over 11 years of supposed economic expansion, but still had plenty of warnings for elected representatives. 

Domestic statistics were positive on the whole, with unemployment figures and Gross Domestic product (GDP) growth showing positive trends. Inflation levels ran below the Fed’s target figure of 2%, which has caused a slight degree of consternation among officials in the central bank. Globally, Mr Powell highlighted concerns around the coronavirus outbreak in the People’s Republic of China and the potential knock-on to the US due to disruption in the Chinese economy. 

US Federal Reserve Total Assets, USD

The above observations were widely reported in traditional media. What was not widely reported was Mr Powell’s open remark that the Fed will double down on bond buying from the US Treasury in the next recession, otherwise known as quantitative easing. He testified that he would use QE and forward guidance on interest rate policy “aggressively should the need arise to do so”. This was despite him coming close to acknowledging that the Fed actually may not have the firepower to combat another downturn, but he proposed an interesting solution to this: 

“it would be important for fiscal policy to support the economy if it weakens” 

Whilst this was a vague remark, it was still an extraordinary thing for the head of the Federal Reserve to be saying publically – central bankers are supposed to be disinterested in areas which are outside their remit, namely government fiscal policy. The lines seem to have become blurred, which can leave central bankers open to criticism over interference in government. Related to fiscal policy, the US national debt is currently sitting at $23 trillion and is forecasted to hit $31 trillion by 2030. When he was asked what debt level would be concerning, he coldly said: 

“I would be concerned now” 

All these factors combined paint a fairly bleak picture for the global economy in the future and the warning signs just keep on coming from those in power. Are individuals and investors prepared for economic downturns, if and when they strike? Never forget that gold is the ultimate protection of wealth in uncertain economic times.

Gold in USD over the last 12 months