Rate Hike Riddles: Interpreting the Fed Minutes (Video)

The Federal Reserve released its October meeting minutes yesterday, and the financial media largely interpreted them as saying a December interest rate hike is still a lock. However, Peter Schiff points out to CNBC that the minutes weren’t nearly that conclusive. As far as he’s concerned, the minutes leave plenty of wiggle room for the Fed to make excuses for delaying right hikes even more, just as they’ve done all year long. Whatever happens, Peter believes the Fed’s actions will be bullish for gold.

I think that the Fed has not raised interest rates all year, because they’re afraid to do it. I think they’re worried about the economy. They don’t want to admit that, so they pretend to raise rates. They keep coming up with excuses about why they’re not going to do it. There are plenty of excuses they could use not to raise rates in December. Maybe if we get to December and the stock market is near all-time highs, and everybody thinks the rate hike is fine, is it possible that they’ll deliver a quarter point and then try to talk it back by saying one and done, we’re not going to do anymore? It’s possible, but I think if they do that they’re going to regret it.”

Highlights from the interview:

“According to the minutes, a rate hike has been a possibility all year long and it hasn’t happened. In fact, if you read the minutes, what it says is that a majority of members – not all – but a majority or most believe that the conditions may be right for a rate hike in December. But they’re not sure. They haven’t made up their mind yet. It all depends on the data, so they’re going to make up their mind then. I don’t see how it’s any different than anything they’ve said all year round. How people can read those minutes and jump to conclusion that a December rate hike is a lock…

“I think that the Fed has not raised interest rates all year, because they’re afraid to do it. I think they’re worried about the economy. They don’t want to admit that, so they pretend to raise rates. They keep coming up with excuses about why they’re not going to do it. There are plenty of excuses they could use not to raise rates in December. Maybe if we get to December and the stock market is near all-time highs, and everybody thinks the rate hike is fine, is it possible that they’ll deliver a quarter point and then try to talk it back by saying one and done, we’re not going to do anymore? It’s possible, but I think if they do that they’re going to regret it. I think it’s a very dangerous game the Fed is playing. I do think the economy is decelerating. If they really were data dependent, the data has been coming out bad. Almost all the data that has come out since their last meeting has been bad, including all the data we got this week. Even that overhyped jobs number – if you factor in the prior two months were not revised up, which everybody thought was going to happen and it didn’t happen. For the prior three months we didn’t get the job creation the Fed expected. These are low-paying jobs. Look at the lousy numbers that have come out, the earnings from the big retailers. The economy is already decelerating, and the Fed still has rates at zero…

“I disagree [that the market could be disappointed if the Fed doesn’t raise rates]. One of the reasons the market is rising now is because the terrorist attacks in Europe make it likely that we’ll get more QE in Europe, and therefore maybe the Fed won’t move. The Fed said today [that] If they do raise rates, that means they’re not going to raise them very much. So I think it’s the easy money that is still propping up the market, and if the Fed doesn’t raise rates, the market is going to like that. That’s all this market has. It’s all about cheap money, QE, and if we lose that, the market’s going down…

“This is a bubble. This is not a recovery. The Fed has made a major mistake. They have made all the problems that caused the 2008 financial crisis worse. So now if they start to try to normalize interest rates, the next financial crisis is going to be much worse than the one in 2008, because all the problems that caused it are bigger. So that is the reality. That’s why I still think the Fed is more likely not to raise rates in December, but continue to pretend that a rate hike is just around the corner but the conditions are just not right, that the data just doesn’t support it…

“I do believe that if the Fed hikes rates, it will happen sooner rather than later. The sooner they hike rates, the sooner they’re going to have to cut them again and launch QE4 to try to reflate this bubble. I think by then, markets are going to figure this out. We’re going to have a currency crisis and a sovereign debt crisis and that’s going to be much worse than the financial crisis of 2008 because there are no bailouts from that…”

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