Macro Guru Raoul Pal Says Fed Is Creating Crisis To 'Cut Rates And Monetize The Debt'

Former Goldman Sachs Group Inc GS hedge fund executive Raoul Pal says the macro backdrop suggests that a crisis is coming and that the Federal Reserve will have little choice but to introduce bailout packages.

What Happened: In an interview with Real Vision Crypto last month, Pal said a parabolic movement could take place in the near future due to the increasing proximity of a banking crisis within regional banks. 

He anticipated that the crisis would necessitate intervention from the Federal Reserve. Concerns have been raised regarding escalating interest rates and an inverted yield curve, as these factors are considered unfavorable to the banks.

Pal also noted that the current market setup resembles the 2015-2016 cycle. 

Reflecting on 2019, the former executive mentioned that it was an unusual year that was characterized by a significant correction. After the correction, the market experienced a parabolic rise.

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“You can use the Regional Banking ETF to see where we are in that, but if that starts breaking $35, $30, then it’s game on for more cowbell to come because the Fed will have to bail these people out. And then we’ve got the commercial real estate problems behind it. So that’s the backdrop of why the cowbell will come,” he said. 

Pal suggested that the crisis would allow the Federal Reserve to abandon its strict monetary policy and offer the government the necessary liquidity to address its substantial national debt.

“Maybe that’s why the Fed is tightening rates even further is to create a crisis so they can cut rates and monetize the debt. Because if they don’t, they have to print more money because the interest rates are higher to pay for the debt payments, which becomes a total catastrophe. The key point is liquidity up,” he added. 

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