Markets Keep Falling for Central Bank Bluffs (Audio)

In his latest podcast, Peter Schiff talks about the Federal Reserve removing the phrase “considerable time” from its policy statement yesterday. While they technically did change the language, Peter points out that they then used some linguistic tricks to essentially maintain the same position on the possibility of future interest rate hikes. You can see for yourself in the quote from the Fed’s press release:

Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy. The Committee sees this guidance as consistent with its previous statement that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program in October…”

After picking apart the Fed’s statement, Peter tries to puzzle out the economic conditions that will justify an interest rate hike in the coming months.

Highlights from Peter’s transcript:

“Wait a minute. They just dropped the words ‘considerable period,’ replaced it with ‘patient.’ And then in the very next sentence, they said that ‘patient’ is basically equivalent to ‘considerable period.’ … How do you drop a word and then not drop it? …

“Gold prices were up and down. They only closed down about six or seven bucks. So in terms of all the other currencies, gold had a very good day today. It was only down in terms of the dollar. And gold stocks actually finished near the highs of the day…

“Why do the markets react this way to Janet Yellen? Because every time she’s had a press conference recently, there’s been a big rise in the stock market and a big rise in the dollar. Of course, one reason is because Janet Yellen always speaks optimistically about the US economy. Why should she speak otherwise? What do people expect? Pretty much, no matter what Janet Yellen believes, she’s going to be optimistic. As long as the numbers on the surface appear good, as long as people believe the economy is strong, Janet Yellen isn’t going to do anything to pierce that bubble of confidence… Either she’s bullish because she’s foolish, or she’s bullish because she’s lying… But people react to her statements as if its some sort of reaffirmation of her optimism in the economy…

“Why doesn’t someone ask Janet Yellen, ‘If you’re going to raise interest rates in April or June, why not just raise them now? Why wait? What is the point of waiting? If you think higher interest rates are appropriate in four months or six months, why are they not appropriate now? What is going to change between now and April or June that would mean we need higher interest rates in April or June, but they should be at zero now?’ She can’t answer that question, because nothing is going to change… If she’s afraid to raise rates now, she should be even more fearful to do it in April or June, because it will be an even bigger bubble by then…

“[What if the Fed is wrong?] What is Fed policy going to be if economic growth slows down, or what if unemployment picks up? What are you going to do, [Yellen]? Of course, if she answered that question, she would have to say, ‘We’re going to restart QE.’ … Because that’s all they can do. All this talk is based on the continuing strength of the US economy, despite the fact that the economy is not likely to continue with that strength…

“Day in and day out we get inundated with bad economic news that nobody cares about. Today, no different… We got mortgage applications… This week, purchase applications fell by 7 percent. We’re now 5 percent below the level we were at a year ago. This is despite the fact that mortgage rates are lower, credit standards are easier…

“We also go the numbers for the third quarter current account deficit. Everyone was expecting the current account deficit to shrink, to narrow… by about 2 percent. Instead, it widened by about 2 percent. They got the percent right, but they got the direction backwards… Bad news for the GDP…

“They did talk about the CPI today. November CPI is down 0.3, which is the biggest drop since December of 2008. The biggest drop in six years. The big mover was gasoline prices…

“[Janet Yellen and Mario Draghi] can talk all they want, and as long as the markets will cooperate that’s all they have to do. But at some point the markets are going to have to wake up to the reality. When they do, it’s going to be very different. I think you’re going to have a big collapse in the dollar when reality sets in. An even bigger rise in the price of gold. It will be a game changer…”

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