If the Federal Reserve is no longer independent that could change everything. In this episode, Danielle DiMartino Booth, former Federal Reserve insider and CEO of QI Research, joins us to break down how politics, policy, and central banking are reshaping markets.
If you want to understand how Fed policy impacts inflation, markets, and your portfolio, this is a must-watch.
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Transcript
Ben Nadelstein:
Welcome back to the Gold Exchange podcast. My name is Ben Nadelstein of Monetary Metals. I am joined by our good friend, Danielle DiMartino Booth. Danielle, for those who don’t know, is the CEO and Chief Strategist at QI Research. She’s a former Federal Reserve insider, and maybe most importantly, the author of the book Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America. Danielle, welcome back to the show.
Danielle DiMartino Booth:
Great to be back with you today. Thank you for having me.
Ben Nadelstein:
Danielle, when I think about the Fed, I always I just want to call you, and I know I’m sure everyone on the planet is just ringing your phone. So there’s been so much Fed drama, whether it’s Powell and Trump doing their comedy bit at the construction site, or just simply the bashing of Fed officials or Fed independents. So let’s start there. There, where do you see Fed independence at this moment? Is it more precarious than ever? Or has Jerome Powell and today’s Fed actually pushed back and said, no, we are independent, and we’re going to be a resilient institution against the federal government?
Danielle DiMartino Booth:
So I I think it’s somewhere in between what you describe. And what’s critical to appreciate is stacking the Fed is a very difficult thing to do. Governors have 14-year terms, so one particular President cannot really come in and reshape the institution because the governors are on the board for such long periods of time. And that was by design. If you look back at the history, the individual that the very controversial building is named for, the Eccles Building. When the Truman administration, when President Truman was putting tremendous pressure on him after he left his post in 1948 and he was replaced, Eccles decided to stay on and finish his 14-year term. So you can’t get rid of people as easily as you would like in terms of being a politician. And this is something that I’ve been talking about for more than a the year now. But now there’s a better recognition, I think, of the fact that Jay Powell, while his term ends in May of 2026, he can opt to stay on through January of 2028. It’s written into the language so he can remain, if you will, a thorn in the side of President Trump.
So we’ll see what happens with these new appointees and the sway that they will hold, because I I think more than ever, and bear in mind, I think Greenspan started really the modern era politicization of the Fed. I think that that deepened under Bernanke and Yellen. And so there’s nothing new about talking about Fed independence, because insiders have been the primary individuals who chipped away at it for generations now. And that’s on them, which is part of the reason I wrote Fed Up, because I was concerned that the institution was becoming too political and not independent enough. But I think that it is incumbent upon federal leadership governors right now to appreciate the moment in history in which they’re taking part and the fact that the Fed is under attack. And that will make, I think, the pre-existing individuals on the board It will hopefully, and I think it will, give them more courage to play a role and not just to have the leader of the Fed, whoever it might be who replaces Powell come May. If indeed he’s replaced, he could be renominated. The President really enjoys beating him up. And we know that the President likes to have punching bags.
So you never know. That could be completely out of left field, but it’s an impossibility. But nonetheless, I think that we’ve seen for the first time since in what, 20 years, a double dissent of Fed governors. I think we could see more dissent going forward, especially if a puppet master, so to speak, is put in place of Powell as the new chair. I think that you could see enough dissent among Federal Reserve Board governors to say nothing of the precedence of the district Reserve Banks. I think you could see enough pushback that the market would have a greater appreciation for, You know what? This is not a strong arm leader necessarily, but indeed a body of 17 individuals making monetary policy. If those individuals were to exert their independence to a greater extent, if they were to voice themselves at a higher volume, we forget Paul Volcker himself. He had full mutiny on his board in the very end. And we could certainly see something like that play out in the future.
Ben Nadelstein:
I want to talk about the internal politics of that Fed board because a lot of people, maybe they know Jerome Powell, but maybe that’s the only name that they know in the Fed. So is there a chance for this type of mutiny to happen where people say, Listen, I think that Powell is not even political, but maybe he’s holding a grudge. Maybe he’s spiteful of the fact that every day he’s in the news being called a moron or a loser, or an idiot. And listen, that’s between him and the President. But personally, I’m data dependent, and I’m going to say that I think the economy either needs a rate cut, or it needs a rate hike, or we need to stay outside of the individual relationship between Powell and Trump. Do you think there’s room for that inside the Fed at this moment?
Danielle DiMartino Booth:
I think we’re already bearing witness to it. And in fact, I’ve been very public and outspoken of late saying that Powell was letting the pressure from the President overwhelmed the data, and that he was himself playing politics, if only to be spiteful, it’s still playing politics and ignoring the message in the data. Everybody is treating this July jobs report as some a shock revision. Well, look, when you’ve had 24 negative revisions out of the last 30 months, this is nothing new. 89% of economists polled recently said that they had serious doubts in the quality of the data being reported on labor, on inflation, coming out of the Bureau of Labor Statistics. So it’s almost regrettable that so many have seized upon this moment to say that President Trump is trying to put politics into these statistical agencies when it’s patently apparent that politics has been there. So maybe it’s Treasury Secretary Bessent. I don’t know. Somebody with a calmer voice needs to be very forthright in pointing out that the data has been broken for some time now.
Ben Nadelstein:
Obviously, E. J. Antoni has been nominated by Trump to take that BLS position. But I do want to talk about Scott Bessent. Where does he fit into this? Because obviously, he doesn’t want to take maybe a lowering of position. That could be a little bit politically and personally awkward, but maybe a lateral move, if that’s even an option in terms of a Fed chairmanship. Do you see him staying where he is because Trump just likes what he’s doing so much at Treasury? Or do you think because of that trust factor that’s been built up, that he needs someone at the Fed to be his guy at the Fed to help move things along at that organization?
Danielle DiMartino Booth:
Well, you’re right. He would have never taken a demotion. So he would have never accepted the position had it come sooner, as we’ve seen now with Governor Kugler stepping down or in January, when her term was due to be completed, due to end, he would have never taken that demotion. But would he take a lateral? Would he go from Secretary of the Treasury to Chair of the Fed, which is, of course, a four-year appointment that would actually extend his time in Washington, DC, if you will? And the answer is, I have no idea. His position as Treasury Secretary is a little bit more global. Some might argue that it was a little a bit more important, but it depends on where Bessent wants to see himself in history. He’s certainly qualified for the job, and we’ve long needed somebody in the position as opposed to a Bernanke or a Yellen who’s a pure play academic, if you will. We need somebody in the position at the Fed who understands the inner workings of the financial markets as well as the macroeconomic data, and Bessent certainly checks both of those boxes. So what he chooses to come May remains to be seen.
The fact that he is the individual who has recently said we’re expanding the search to replace Powell, that tells you he’s leaning against leaving the Treasury, because you wouldn’t be necessarily expanding the search if that was the case, unless the individuals who had already been named had already actually been disqualified or turned the position down. We don’t know But you certainly don’t want to put on your resume. I was hired to be the patsy, and basically do the President’s bidding. It certainly won’t further your career in economics after you leave the Fed. If you were to walk into a position knowing you were painting yourself as the next Arthur Burns.
Ben Nadelstein:
And what do you think about someone getting elected to that position? Obviously, people will say, Oh, this is just a purely political play. This is a political pats, if you will. And then actually, really, either the opposite happening or them just simply being ineffective because the rest of the board says, Well, we’re not going to play along. How does that dynamic affect who is chosen? Because if there’s a shadow fed or a shadow board where these people are making decisions, Until this election happens, whether or not they’re actually chosen, that’s just full of criticism, whether they bend the knee to the administration or they don’t bend the knee. So what do you think is more likely that this person is chosen and says, Listen, I’m going to do my best to be a patsy regardless of the people on the board, if they help me or not? Or do you think they say, Listen, I’m going to have a backbone, and it’s my job to be independent?
Danielle DiMartino Booth:
Well, and that’s a clear and present danger to President Trump, is that he could nominate a well-qualified economist who takes the position and chooses to do what’s best for the economy and actually becomes a an insightful, thoughtful, regular type of, if you will, leader of the Fed, listens to the board staff. The board staff really has greater power than anybody else because they don’t have terms. Their term is a life term, basically. And you must work with the Fed staff at the Federal Reserve Board in Washington, DC, in order to be effective in the position. So you You paint a risk. You paint a risk for the President, and either of the routes could backfire. You could not have the backing of the staff and the other governors on the board and the presidents of the district Banks if you were to come in and just be a patsy, as we’re describing, or you could come in and be completely independent in monetary policymaking, just to indemnify your own legacy. Either of those two things could happen. But as you point out, there’s no silver bullet. Trump can appoint who he wants, but what happens after that, it’s not a sure thing.
Ben Nadelstein:
Danielle, you know so much about the history of the Fed. Where are we? Just looking back, who most closely resembles either Powell as a Fed chair or just this time period? Is this completely unprecedented where we’ve seen such political infighting or machinations between the Fed and the and the President? Is this a first in history, or is there somewhere we can look back and say, No, we’ve actually seen this before, and at least historically, this is how it’s played out?
Danielle DiMartino Booth:
So we have certainly been at a very parallel place in US history. And that is, of course, when Nixon brought Arthur Burns in. And Arthur Burns was seen to kowtow to the President, and that, of course, unleashed the great inflation of the 1980s that Paul Volcker then was tasked with taming. So we’ve definitely been at this juncture. There are certain ingredients that you would have to have enter the mix, and that brings politics back into the equation. If we were to, say, in the midterm elections, have a blue wave. And there were Cares Act type of legislation passed where we’re handing out money’s falling out of helicopters, to use Bernanke’s metaphor. If we were to flood the economy all over again with stimulus spending, money directly deposited into US household savings accounts, which then would unleash inflation again. The reason inflation has been tamed in large part is because that stimulus money stopped flowing. But if we were to see repeat of that, and you were to have somebody who was considered to be malleable, you could certainly line up a set of circumstances where you would see inflation completely come unglued. And that would run a close parallel to what happened in the 1980s.
Ben Nadelstein:
And I do want to now ask about inflation. It seems like inflation has obviously cooled to where it was previously. But is inflation still a threat that the Fed is keeping their eyes on, or is unemployment more important now, or is there just a different risk altogether, whether it’s from tariffs or other types of debt, from monetary policy? Is inflation Is this still the biggest story when it comes to what the Fed is looking at, or have we moved on from that narrative?
Danielle DiMartino Booth:
I think we largely have moved on the latest consumer price index that came out. The core consumer price index, excluding food and energy, came in hotter than what was expected, at least on a year-over-year basis, rising by 3. 1%. And the markets largely shrug that off. Why? Well, 54% of the increase was attributable to shelter inflation. And anybody who’s got a pulse right now can tell you, whether it’s Redfin, realtor. Com, CoreLogic, all of which are predicting that home prices will be an outright decline by the end of this year, they’ll tell you, Okay, that’s just the lag effect of shelter not yet being reflected in the data. Let’s move on because we know that the shelter prices are under pressure. That’s where we are right now with inflation. We’re seeing the tariff pass through because we have record numbers of Americans working multiple jobs, because we have record numbers of Americans working in the gig economy and working part-time for economic reasons and full-time jobs just absolutely being destroyed, 440,000 lost in the month of July alone. When you have income wage disinflationary pressures that are pushing their way into the economy, you can have the tariffs, but you cannot pass through the higher costs because households simply don’t have the purchasing power.
If they’re not part of the elite top 10% that own most of the stock market and can handle higher prices, if the rest of the consumers cannot, then what you end up with is a margin squeeze. And that is why I think we have these big court cases right now where large corporations are going after the US government, going after President Trump and saying that these tariffs, the way they were imposed was not legal. And it’s because they’re getting their margins squeezed to Kingdom Come and not able to pass through higher costs. I think inflation is under control, but not for the best reasons. And that is because, again, we have falling wages in this country for millions upon millions of Americans right now. You add in the pressure of offshoring white-collar jobs, artificial intelligence replacing more white-collar jobs. This is a big issue right now in the economy, and it tells you One of the very first questions you asked me, is Powell playing politics? Yes, he is, because evidence that the Fed needed to be leaning towards its employment mandate has been around for some time now, and he’s been ignoring it.
Ben Nadelstein:
I want to ask you a interesting question I think about a lot, and I ask our guests a lot, which is that us in the sound money camp or the economics camp, we often talk about the dangers of low interest rates or zero interest rates. Obviously, you are one of those voices as well. And yet when we see high interest rates, there’s also problems with high interest rates as well. So is there a threading of the needle that has to happen? Is zero interest rates back towards where we have to go? Or is there something else that’s going to happen where people say, Listen, 5 % is the new normal. We’re going to keep it here. Yes, there’s pain, but we’d prefer this pain rather than the zero interest rate pain. What does it mean for people to say, Well, we want rates lower or we want rates higher? Because it seems like there’s problems in both directions.
Danielle DiMartino Booth:
Well, there are, and there are problems that feed on each other. So when you have a low interest rate environment for a prolonged period of time, lower for longer, you end up with companies becoming over-indebted. You end up with households becoming over-indebted. And that over-indebted credit dilemma makes it to where if you try and normalize interest rates, the debt load that’s been built up in the zero interest rate environment cannot be shouldered, and debt cannot be refinanced at higher interest rates. So the two You can’t speak about the two situations independently of one another because they feed on one another. And that, I think, is the recognition, the maturity that we need at the Fed among Fed leaders, to appreciate that if interest rates do need to be lowered, they certainly don’t need to be lowered to the zero bound ever again. I think that that needs to be recognized in a public way as being a failed experiment, along with quantitative easing, which, of course, is not launched until after you hit that zero bound. So if Fed leadership wants to demonstrate that they’ve matured and grown up, we won’t ever see zero interest rate policy again.
Ben Nadelstein:
I heartily agree. I want to ask you now about something which has been, I don’t want to say a conspiracy theory, but for a while, people have talked about that the Fed itself will be abolished and it will be subsumed by the Treasury Department. What are your thoughts on this happening? Where basically the President says, You know what? I’ve had enough of tenures and governors and board members and Powell and fighting. I’m just done completely. The Fed is now going to be subsumed under my good friend Scott Bacent, a treasury. And from here on in, the treasury will make decisions about the debt, about monetization, about QE, about inflation. It will all be under one big roof, and the argument will be a populist argument. Hey, now the voters have control over the printing press. What do you think about this argument? Do you think it’s a) popular and b) likely to happen?
Danielle DiMartino Booth:
Well, we’ve seen this before because in many ways, Treasury Secretary, Minutian, did take that position, and Powell did allow the Fed for a time in the midst of a global pandemic using that as a reason. The Treasury We did for some time, basically, perform a leveraged buyout of the Fed, and it completely lost its independence when it did begin to monetize outright the US debt. So it certainly could happen, again, given a certain set of circumstances. But this is not a magic wand. This is not an executive order. It is the Federal Reserve Act of 1913. That was legislated by Congress. If you want to abolish the Fed, that’s going to have to be an act of Congress. Could that groundwork be laid? Absolutely, in a very populist way. And again, that would be yet another route to taking us to run away inflation rates and basically kissing the value of the US dollar goodbye.
Ben Nadelstein:
There’s this idea called the Horseshoe Theory, which is that over time, ideologies, instead of moving farther away from each other, they actually come back around in a similar type of Horseshoe fashion. In a way, this populist uprising saying, Well, we don’t want Fed independence. We, the people, decide what interest rate should be, or We, the people, decide how much QEY should happen, sounds very similar to the modern monetary theory camp known as MMT, which wants a people’s economy. So do you basically see the socialization of the economy just happening basically without any type of leeway or stop gap? What would be the way that we can have more independence or more monetary monetary financial freedom? Do you see that on the ropes, or unfortunately, because a guy like Trump says, Yeah, I’m a stimulus guy. I’m a lower interest rate guy. That the idea of saying, Hey, we’re going to tighten our belts. Hey, the economy really has to take a hit because it’s the right thing to do. Do you think those days are gone?
Danielle DiMartino Booth:
Well, I think the latter of the two options is certainly the harder road, the harder road to take. And again, one that would require a lot of maturity, not just among Federal Reserve officials, but also the members of Congress, because they would have to be along for that ride. And the economy taking that hard medicine. If we had term limits, that would certainly enable and facilitate some of these harder issues to be addressed. But there is certainly the possibility that we go down that road. I was just reading the homeownership rate among individuals who are the millennial homeownership rate has declined by about nine percentage points since 2004. So in the last 20 years, you’ve seen almost a 10% decrease in the homeownership rate. That brings me to the power of the poll and what individual, who individuals decide that they may elect. We’re watching that play out in the nation’s largest city. We’re seeing this play out in New York City. Rent control Poles, having designated price fixing for public transportation, all of these things would absolutely destroy New York City. So it would almost be beneficial to the country as a whole to be able to sit back and bear witness to a failed experiment, which would make me very sad.
I lived in New York for years. But it is reflective of the power at the Pole and the nihilism that is felt among so many millennials who now they’ve been slammed with student debt repayments, and they feel like the baby boomer generation has robbed them, and that they’ve inherited all of the bad part of the debt that’s been built up over their lifetimes by others, by people who are older than them. I can’t tell you what’s going to happen at the polls, but I can certainly tell you that the divisiveness that we’ve seen in election seasons in the United States is not going anywhere. We’re going to see more and more of that the more we see these younger generations fall behind. We have the most striking chart that I have seen in recent memory, it’s seared into my memory banks, it was created by Morgan Stanley, is that right now you have more young adults living with their parents than at any time since the Great Depression. And millennials and Gen Xers together make up 8. 5% of US voters. These are big numbers. And we could certainly see, it is perfectly feasible to see a massive backlash against what the Trump administration is doing, whether it be the midterms or the subsequent presidential election.
And that would lay the groundwork for what you’re describing modern monetary theory. And again, just kiss the dollar goodbye, kiss the treasury as the risk-free asset goodbye, kiss the Republic goodbye.
Ben Nadelstein:
Scary stuff. And I want to now ask you, as someone who’s obviously thought about the policy implications and where we’re headed, which could be a bad place for a lot of people, what do you say to a Scott Besson? What do you say to a President Trump? What do you say to a Chairman Powell? Right now, if you have their ear, say, Listen, the nation is facing some pretty big, either financial or fiscal problems, what would you whisper to them to say, Hey, I know it might be hard, but this is your time to make a stamp in history and do the right thing? What do you tell these people?
Danielle DiMartino Booth:
I would say that the combination of the three of them, that they’ve created the most uncertainty that we’ve seen in our lifetimes. And Until that weight of uncertainty is lifted off of the economy, the absolute end goal, and that is creation of jobs through the private sector, that’s impossible. It’s It’s impossible for companies to make major capital expenditure decisions. It’s impossible right now for companies to say, I’m going to hire, I’m going to expand my headcount, when they’re in a cost-cutting mode, when uncertainty is causing them to put capital expenditure decisions on ice. This is toxic for capitalism, and it’s toxic for the democracy because it does end up risking the backlash at the polls that heralds an era of outright socialism in the United States. And if they don’t stop this train, and they are the individuals who can, together, begin to remove the uncertainty. Scott Bessent said in multiple interviews before he was nominated and confirmed, multiple, multiple interviews, he said, If we want companies to manufacture in the United States, give them a few years. Give them a few years to build Hold the plans. Don’t slap tariffs on willy-nilly right away, because that’s going to cause a paralysis in the private sector.
And indeed, that’s what we’re seeing right now. So if you want to reinvigorate the US economy, you have to get the private sector back up and running again.
Ben Nadelstein:
Wish I could have said it better myself. Danielle, I will be joining the unemployment line if we don’t discuss gold. So let’s talk about that shiny metal of ours. Obviously, a lot of what we’ve been discussing really It points to a bull market in gold, and that’s why we’ve seen gold prices rising so much. So what do you think about this argument that the Fed, the Treasury, they’re actually looking at gold as a monetary asset. It’s on the books at a lower price. They could potentially revalue gold that is on their books. The Fed actually released a paper recently on its website talking about official reserve revaluations, different experiences internationally when it comes to gold. So do you think that this is something that was done purposefully to wet people’s beaks and say, Hey, listen, I mean, we’ve got this gold. Maybe we should do something with it? Or is this just a policy paper that came out at the wrong time and some gold bugs like myself are interested in?
Danielle DiMartino Booth:
Well, look, I think that it would be one thing to say, We’re going to bring discipline out of any maneuver like this. If, however, I believe it’s a $750 billion one-time accounting benefit to the nation’s balance sheet, if we’re going to blow through that in three quarters of deficit spending, what have you really accomplished? And I think that it takes us back to your last question about what would it really take to get the United States in a better place. So should we have the gold carried on our books at the current level? No, of course not. But for the moment, unless there’s fiscal discipline that enters into the mix, it is a one-time accounting gimmick, and nothing more than that.
Ben Nadelstein:
I do think maybe you’d be able to comment on the fact that if this was done, it actually signals weakness, right? Saying that, Listen, all that’s left here is accounting gimmicks. We’re going to try MMT. We’re going to try revaluing the gold. We’re going to try some schemes here. Basically, that’s it. We’re not going to try to do real economic changes. We’re not going to try to create real economic value. We’re just going to start doing gimmicks. Do you think that basically, if this is once either revaluation happens or other type of financial gimmicks begin to happen, that the dollar status starts to take a hit because people say, Listen, they’re not even trying the things that would potentially work. They’re basically left with accounting gimmicks.
Danielle DiMartino Booth:
I think that that is the real risk that we run. And I do hope that there’s a great appreciation. There was an air coming out of the balloon effect when the markets slowly woke to the realization that Treasury Secretary Bessent was not going to be issuing fewer Treasury bills after all. For all the criticism that he hurled on his predecessor, Yellen, he turned around and did the same exact thing. And so there was a little bit of loss of faith there, if you will. We can only handle so many of those before there are repercussions. If Bessert truly wants to get the deficit down, cut it in half as a percentage of GDP, some things will have to change in terms of… Or some things will have to actually match. His actions will have to match his words. And we’re not there yet.
Ben Nadelstein:
And I want to ask now about other central banks because we’ve been talking about the Fed, but of course, other countries have their central banks and their problems to deal with. So they have been stocking up on gold like it’s on sale, even though we know it is quite certainly not, nearing all time highs. And gold has now become the second most common reserve asset for central banks outside of the dollar, displacing the Euro. So what do you see this as a sign of? Do you see this as a sign of people are trying to get out of dollar assets and saying, well, we can hold gold. It’s liquid. It’s globally recognized. And this will be our new reserve asset. We’re going to try to shy away from adding more dollars to our balance sheet. Or are they saying we’re going to need to shore up our currency at some point, and we’re going to use gold to try to do that? So where does How does gold fit into this reserve asset picture?
Danielle DiMartino Booth:
I think that buildup in gold reserves could be indicative of countries wanting to diversify away from the dollar. A critical first step, if that is the goal, however, would be to stop issuing debt in dollars. Other countries are more indebted than the United States. Many countries are more indebted than the United States. I think on a practical level, that that would be a first step. What concerns me more as a historian is that the buildup of gold is, in fact, a reflection of the state of geopolitics. And when you see money being allocated to building up militaries, and historically speaking, when gold is built up by countries, that sometimes has been a predecessor to the wars I don’t want to think about with a 21-year-old, 19-year-old, and 17-year-old son.
Ben Nadelstein:
Well, as a 26 and soon to be 27-year-old, I definitely don’t like seeing that. The idea that gold on the balance sheet is correlated with higher geopolitical risk, higher chances of warfare, more economic nationalism, where countries say, Listen, Why trade with them when we can just conquer them or fight them? That is definitely scary. Do you think that there is a potential path forward here where peace does break out in places like Ukraine or in Israel with Gaza? Do you think that if that does happen, maybe this new global economic order where people said, Well, we’re going to fight each other, that maybe that takes a turn, that we’ve bottomed there in terms of geopolitical frustration. Trump says, Hey, we have a big win on the board. Let’s get a win with France and Germany and the UK. Do you think that That is an option, that there’s a chance that maybe we’ve bottomed in terms of how bearish we can get on the geopolitical situation, or do you think there’s potentially more to fall?
Danielle DiMartino Booth:
Well, I’ll say this much. I can’t predict the behavior of individuals, especially leaders who get high on the idea of power. But I certainly hope you’re right. It would be lovely to think that there is going to be more peace in the future. I mean, I say that as a mother more than anything else.
Ben Nadelstein:
Absolutely. All right, Danielle, I want to take you into a rapid fire round. I’ll ask you questions from all around, and you can answer as short or as quick as you’d like. So let’s start with, do you think the Fed still pays close attention to gold prices? Obviously, Greenspan was a gold guy, but he said, well, we don’t really think about gold. It’s a Barbra’s relic, all that good stuff. So do you think the Fed is paying more attention to gold than they have before, or do you think that gold still remains a sideshow when it comes to a monetary asset?
Danielle DiMartino Booth:
So I think the Fed is paying attention in general to other types of currency, and that is just a sign of the times, if you will. I would hope that they would be evolving with how they make monetary policy, and that that is why they’re looking at things through different prisms. From my experience inside the Fed for nearly a decade, it’s a tall order. So I would hope that, especially, we just had a treasury bond trade get settled on the blockchain. Stranger Things. Trade it on a Saturday. So I hope that Fed policymakers are evolving. That’s my answer.
Ben Nadelstein:
I want to now ask about some of these new tools that the Fed could potentially use on the negative and the positive side. So we’ve had Judy Shelton on the podcast discussing her idea for gold-backed treasury securities. That’s potentially one offering. Of course, like you mentioned, there’s these blockchain or crypto options. Do you think that the Fed is going to say, Hey, let’s try everything from stablecoins from the Fed to gold-backed securities? Do you think the Fed is open to trying different things? And do you think that hurts their credibility because they’re seen as saying, Listen, we have to try all the different weapons that we have available to us?
Danielle DiMartino Booth:
Well, I would say this much. From my experience on the inside, that is not how it works. There will be many, many staff papers written up on each potential option, and then they will ruminate and decide which of them is going to be the most efficacious and throw great big words like that around. So not typically how the Fed operates. It’s just to try everything.
Ben Nadelstein:
What do you think about this idea of a shadow Fed where Trump will nominate some people? They won’t officially be in charge or really have any power, but they’ll give their pronouncements and say, Oh, the Fed should have done this, or actually, they really should have been doing that. Do you think that that, A, will happen? And B, do you think that’s a helpful thing for our country where there’s basically two institutions, one official one and one shadow one. And if so, why do you think that this could be the way to get a Fed position? You’re first on the shadow Fed, then you’re officially nominated to the Fed. Do you think this is precedent setting, or do you think it will happen at all?
Danielle DiMartino Booth:
So this one’s an easy one. No, it’s not good for the country, and it would actually be effective despite not being good for the country. If you were to hear others in official positions at the Fed had come out in support of any positions that were floated by this particular theoretical individual or individuals.
Ben Nadelstein:
What about this idea that we’re facing some disinflation, whether it’s in the housing market or in other markets? Do you think that this idea, the hard landing versus the soft landing, is that something investors should still be thinking about, whether we should face a hard landing in the coming months or in the coming years? Is the hard landing idea still something that investors should be grappling with?
Danielle DiMartino Booth:
Well, investors are We’re clearly not grappling with any hard issues right now, but they should be, yes. Again, we’ve had 24 of the last 30 months of payrolls revised down, net job losses, according to Bureau of Labor Statistics, revised. Data began in the second quarter of 2024. Disinflation is a very real phenomena in the latest NFIB small business survey for the first time. Poor sales came in as as as problematically, if you will, as inflation. So when companies are facing, when companies are saying, you know what, falling revenue is just as much of a problem or a risk to our business as rising prices, that typically tells you You need to have that hard landing, keep that hard landing, excuse me, on your radar.
Ben Nadelstein:
What do you think, in your opinion, is the best way to filter good information from bad? Obviously, I can only recommend QI research so much, but you have such a strong grasp of the data and what it means as well. How do you filter good information from bad information and how that affects, obviously, your investing or your education around finance?
Danielle DiMartino Booth:
So I think it’s important to study trends and to look at the data underneath the data, to try and back up what is in the official realm with more real-time metrics. So unlike most Fed officials, I’m very open to new sources of data, and always use them as a back check to make sure that you’re not falling into the trap of simply validating your own views.
Ben Nadelstein:
What do you think about this new source of data called prediction markets? There are ways that you can basically bet on certain events, whether it’s what is Powell going to say at the meeting? Is Trump going to have new tariffs? Will Ben be a part of the NBA? Not great odds on that one. But what do you think about these prediction markets as tools, ways to gather information? Do you think these are helpful in ways of hedging or information gathering, or do you think they’re just a new betting market to speculate on whatever the Fed says this month?
Danielle DiMartino Booth:
I’ll say this much, the house always wins. When you have particular investors throwing money around and you’re trying to craft narratives to profit from, then whoever’s got the most money wins. So be very careful with these types of platforms.
Ben Nadelstein:
In your view, what’s the most underappreciated risk you think the Fed is facing right now? Obviously, there’s stuff that they’re always paying attention to and discussing at these meetings, but what do you think is something that maybe isn’t on their radar, but it should be?
Danielle DiMartino Booth:
Well, I remember that I wrote a special briefing for Richard Fischer back in the summer of 2007 because high yield bond spreads were at record tight levels. Well, we’re back there. If the Fed’s not paying attention to the credit markets right now, it should be.
Ben Nadelstein:
Next question for you. Obviously, we have a lot of gold investors listening and some clients listening as well. What do you think is the biggest risk in terms of a gold investor? If they’re looking at the price of gold, maybe they’re a long term owner and they don’t really care about the day to day fluctuations. But what should gold owners be thinking about? Is it that maybe crypto is going to overtake gold? Is it that the Fed will offer certain gold securities that overtake regular gold bullion products? What do you think is something a gold investor should be aware of in terms of either a risk or in terms of prices or just in general to the gold market?
Danielle DiMartino Booth:
I’m going to give a fairly short term answer because I believe that gold should be just a basic holding in any portfolio. A big proponent. But I do think that if you’re concerned about the price of gold, that you should be paying more attention to the price of other very risky assets, because when margin calls are made, oftentimes, it’s what is of the highest value that gets sold.
Ben Nadelstein:
Absolutely. We discuss that all the time. Hey, gold’s super liquid, and that cuts both ways on that sword. For those interested in earning a yield on gold, paid in gold, they can check out monetary-metals. Com. Okay, next question in the rapid fire for you, which is what sectors of the economy do you think are most vulnerable if rates remain high? And if rates change, what sectors do you think remain vulnerable there?
Danielle DiMartino Booth:
So I think right now that consumer discretionary is definitely an area that is very much at risk. We’re watching delinquency rates rise at a very rapid pace. Lenders are dropping just flat out, dropping out of the market. So I think that that sector that is consumer-facing is very much at risk. And I think in a lower interest rate environment, a lot of your defensive type of positions could potentially be at risk. And sectors that benefit from falling interest rates. Obviously, we’re seeing a big run in the banks on a day that the CPI, when we’re speaking, that the CPI did not disturb markets. You end up with beneficiaries like the financials.
Ben Nadelstein:
What is something you’ve changed your mind about over the course of your investing career? Obviously, you’ve written this book Fed Up, which I cannot recommend enough, but obviously, the Fed and the world and the economy has changed quite a bit. What’s something you’ve changed your mind about?
Danielle DiMartino Booth:
So the thing that I have really changed my mind about the most, it’s not necessarily changed my mind, but the thing that is on my radar that was not necessarily is simply the power of momentum. And the fact that it can be so strong in addition to passive flows, that everything you learn is not necessarily relevant. So fundamental analysis in an environment like this has no relevancy at all. And that can be a wake-up call unless you’re paying attention.
Ben Nadelstein:
Okay, here’s a non-financial question for you. You’ve got a great husband, which you’ve met before, and apparently some great kids as well. What’s something that you can give in terms of whether it’s relationship advice inside the family or for young professionals looking for advice outside of their financial sphere to have a happier and healthier life?
Danielle DiMartino Booth:
So I would say this much, have children, have as many children as you can possibly stand having. Because parenting is actually something I’m going to be writing about this week. Parenting is the hardest job that you’ll ever do, and it is absolutely the most fulfilling job you will also do. And the one thing I would say that gives you the greatest degree of happiness is being able to demonstrate and teach the importance of financial independence. And that is the hardest part of parenting.
Ben Nadelstein:
Okay, Danielle, last question for you, which is, what’s a question I should be asking all future guests of the Gold Exchange podcast?
Danielle DiMartino Booth:
So I The thing on my mind the very most is, what could possibly change passive investing? Actually, I have the answer. I’m not going to tell you what the answer is, but I have the answer. But I have the answer, but I’d be curious to know, simply by asking the question, how much or little that phenomena is on people’s radars, because it’s, again, it’s the greatest lesson I’ve learned in my adult career.
Ben Nadelstein:
Danielle, I could speak with you for hours and pick your brain, but as we come to the end of the interview, where can people find more Danielle and more of your work?
Danielle DiMartino Booth:
So at QI Research, we’ve just celebrated our 10-year anniversary of cranking out very independent research. We publish the Daily Feather every trading day of the year. We publish our flagship weekly quill, as well as our Saturday intelligence briefing. Those are some of our institutional offerings. So please come to QI research. And if you don’t already follow me on Twitter, please do that as well. And if you’re looking to just get your toe wet, read The Daily Feather, come to demartinobuith. Substack. Com. Love to have you join the community.
Ben Nadelstein:
Danielle, thanks so much for the great interview. We’ll have to have you back soon.
Danielle DiMartino Booth:
Thank you.
