In December, Peter Schiff predicted that the Federal Reserve was about to hike rates for the last time and that the next step would be rate cuts. Yesterday, Jerome Powell made comments widely interpreted to signal the rising likelihood of a rate cut. The Fed chair dropped the word “patient” from his vocabulary, saying the central bank would respond as “as appropriate” to the perceived economic impacts of tariffs and other economic data.
Peter appeared on Fox Business Countdown to the Closing Bell with Liz Claman to talk about what’s next up for the Fed and how it will impact the economy.
“I don’t think that Powell would even open the door to the possibility of a rate cut if he wasn’t prepared to walk through it.”
Peter said the reason he knew the Fed would end the hiking cycle in December was because the stock market was tanking and he knew the only way the central bank could stop the carnage was to take the rate hikes off the table.
“Well, now it’s falling again, and so now all they’ve got left in their quiver is to actually cut rates.”
Claman pointed out that the stock market was popping at the mere suggestion of a rate cut.
“Exactly!” Peter said. “But I think people are wrong if they think it’s going to work again.”
“The Fed was able to inflate an enormous bubble with QE one, two and three, and keeping rates at zero for as long as they did. But the next time, it’s not going to work.”
Peter reiterated a point that he made during his podcast last week, noting that bond traders are anticipating a recession. They are betting that the Fed will cut rates during the downturn.
“They’re right. But they’re wrong on the outcome. We’re going to have stagflation. It’s inflation that’s going to be the problem. And the economy is headed into recession, but the Fed should not be cutting rates because it’s stoking the inflation fire.”
Claman asserted that we don’t have inflation fires. She said we are “way below” the 2% CPI target the Fed uses as a gage.
“We’re not way below. We’re barely below the 2% number. But that’s just the way government measures it. Of course, in reality, prices rise faster than what the CPI reveals.”
Peter reiterated that the Fed is going to go back to 0% interest rates, and he pointed out that there isn’t a lot of room between the current rates and that zero level. He said the real “stimulus” is going to be QE 4, which will be bigger than the first three rounds combined.
“The Fed is going to go back to QE. They are going to do whatever they can to try to stop the bear market and to try to prevent the recession. But they’re going to fail. They are going to make it worse this time.”
During his remarks, Powell said that this isn’t unconventional policy anymore. He called it “business as usual.” Peter said the reason we didn’t have a dollar collapse and inflation didn’t take off in the aftermath of the Great Recession was because everybody thought the Fed’s monetary policy was temporary. They thought it was an emergency measure, that the central bank would eventually normalize rates, and that it would shrink its balance sheet.
“But when the markets realize what they should have realized from the beginning – that this is a permanent expansion of the balance sheet; this is debt monetization, that there is no end in sight, that it’s going to be zero percent forever, then the bottom is going to drop out of the dollar and then we’re going to get all the inflation that we should have had, only more.”
Liz asked Peter what people should do to prepare. One of the things he emphasized was to buy gold. Even above $1,300 an ounce, the yellow metal is a bargain.
“Remember, we got as high as $1,900 back in 2011 when people were actually worried about QE. Well, they were right to worry. The mistake was in thinking that everything was OK. So, when we go back to QE and zero percent interest rates, gold is not stopping at $1,900. We’re going to $5,000 to $10,000.”
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Author: Tyler Durden