Jim Rickards: If the Fed Does Raise Rates, Look Out Below (Video)

A June interest rate hike is the talk of the town. Jim Rickards doesn’t think it will happen, but if it does, he says, “Look out below.”

Rickards appeared on RT’s Boom Bust to explain why. First, he makes the case that we shouldn’t listen to every word that comes out of every Fed regional bank president’s mouth. He suggests they are likely “testing the waters.” As for the constant harping on jobs numbers, Rickards agrees with what we’ve been reporting. The employment outlook isn’t really all that good:

It’s nowhere near full employment because obviously a lot of the jobs are part-time. Some of the people are working two jobs, so they get counted twice. Labor force participation went down in the last jobs report. So there is plenty of slack in the economy.”

So, Rickards doesn’t think the economic factors warrant a rate increase. But he says if the Fed does make the move, it will send the stock market into a spiral and spark another round of currency wars:

The problem is if the US raises rates, you’re going to strengthen the dollar, and the Chinese will unilaterally devalue. They’ve been playing ball with the US for the last three months, but they’ll devalue on their own because they need the help. They’re desperate. Their economy is slowing dangerously. So the Fed’s really playing with fire here. If you raise rates, that’s going to strengthen the dollar, the Chinese will break the peg, and either way US stock markets will fall out of bed…My guess is they won’t raise rates. But if they do, look out below.”

Highlights from the interview.

“I don’t put a lot of weight on what these regional reserve bank presidents are saying. They have their own views. They don’t carry that much weight. Or they’re being asked to kind of go out and condition the market a little bit – test the waters, see what happens.”

“This is all an expectation game. It’s all foreign manipulation. We’ll see what happens in June, but I don’t put a lot of weight on it.”

“It’s nowhere near full employment because obviously a lot of the jobs are part-time. Some of the people are working two jobs, so they get counted twice. Labor force participation went down in the last jobs report. So there is plenty of slack in the economy. Five percent [unemployment] might have been tight 20 years ago, or 30 years ago based on a very different economy, different demographics, and different structural composition of the economy, but today it’s not as meaningful.”

“The Fed’s not even looking at the labor market right now. They’re just looking at inflation. Yellen said that. Go look at her speech to the New York Economic Club on March 29…If we tighten early and we cause deflation, we can’t fix it, but if we pause and we cause inflation, we can fix it. So, even though they don’t know what they’re doing, the risks are asymmetric. It’s better to do nothing than to make a mistake that you can’t fix. That’s the position that Yellen adopted. It’s all about inflation. I wouldn’t put a lot of weight on the jobs report.”

“In January you had a more than 10% technical correction [in the stock market]. The reason for this is throughout most of quantitative easing, QE1, QE2, QE3, the Fed was trying to operate through what they call the portfolio channel, which is, ‘I’ll make fixed income so unattractive for you with such low rates, you’ll go out and buy stocks and buy real estate – pump up the asset values, create a wealth effect, and people will lend and spend.” Now that whole theory is nonsense, but that’s the theory the Fed is operating under. The problem is they’ve created two bubbles. They’ve got a real estate bubble. They’ve got a stock bubble.”

“The problem is if the US raises rates, you’re going to strengthen the dollar, and the Chinese will unilaterally devalue. They’ve been playing ball with the US for the last three months, but they’ll devalue on their own because they need the help. They’re desperate. Their economy is slowing dangerously. So the Fed’s really playing with fire here. If you raise rates, that’s going to strengthen the dollar, the Chinese will break the peg, and either way US stock markets will fall out of bed.”

“My guess is they won’t raise rates. But if they do, look out below.”

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