Fed could still pivot in March, but it won’t be through rate cuts: Nomi Prins warns of massive banking crisis

(Kitco News) – After a hawkish Federal Reserve and a strong U.S. jobs report, markets are now pricing in the first rate cut in May. However, Dr. Nomi Prins, geo-macro economist and best-selling author, still sees the Fed as likely to pivot in March but without the use of rate cuts. Prins was speaking in an interview with Michelle Makori, Lead Anchor and Editor-in-Chief at Kitco News,

After the Fed kept rates between 5.25% – 5.5% and Powell stated that a March rate cut was not likely, markets re-adjusted their expectations from a cut in March to a 60% chance in May, according to the CME FedWatch Tool.

But Prins said investors need to pay closer attention to what’s happening with quantitative tightening (QT), forecasting a pivot to quantitative easing (QE) sooner than many anticipate.

“In the Q&A on Wednesday, [Powell] answered some questions that indicated there could be other ways of the Fed loosening monetary policy before the second half of the year,” Prins said. “The quantitative tightening that is in play has been reduced. So QT is becoming much more QT light.”

The Fed pursues QT by removing money from the economy – it allows some of its debt securities holdings to mature without reinvesting the principal. Since June 2022, the Fed has reduced its holdings by over $1.3 trillion to $7.7 trillion.

During the press conference, Powell stated that rate cuts and quantitative easing could be separated and the Fed’s balance sheet was going to be a specific topic of conversation for the March FOMC meeting.

At the press conference, Powell said: “We’re getting to that time where questions are beginning to come into greater focus about the pace of run-off and all that. So at this meeting, we did have some discussion of the balance sheet, and we’re planning to begin in-depth discussions of balance sheet issues at our next meeting in March.”

Prins added that this means that the Fed could introduce various forms of QE as soon as the next meeting. “He was indicating, without trying to, that there could be some movement towards various forms of QE before we see actual rate cuts,” she said.

Prins also explained how the Fed’s emergency lending program, the Bank Term Funding Program (BTFP), created after three major bank failures in March of last year, fits in and why it could be extended past its expiration date of March 11. For insights, watch the video above. 

Prins expects gold to be one of the first assets to react in response to potential future QE. For the reasons why and to get Prins’ bullish gold price forecast for this year, watch the video above. 

More bank failures ahead

The main reason for the Fed to introduce QE would be more incoming bank failures, according to Prins.

“I do see the potential for a massive crisis in the banking sector. We are not out of the woods there. If that happens, it will be remedied by QE, and that will help this particular sector by creating liquidity,” Prins said.

For more on why Prins is still optimistic when it comes to stocks despite the risk of more bank failures, watch the video above. 

CBDCs

Prins also commented on Former President Trump’s remarks regarding the promise to ban the creation of a central bank digital currency (CBDC) if he is elected. Trump is currently the front-runner in the Republican leadership race.

Speaking at a campaign stop in New Hampshire in January, Trump said: “As your president, I will never allow the creation of a central bank digital currency. Such a currency would give a federal government — our federal government — absolute control over your money. They could take your money and you wouldn’t even know it’s gone.”

Prins shared her fears about CBDCs and how they can be introduced in the U.S. Watch the video above to get the details.