Peter Schiff: Look for Fed to Return to QE with Trump’s Economic Plans

Peter Schiff recently appeared on CNBC’s “Future’s Now” program to discuss what the Federal Reserve will likely do during a Donald Trump presidency. Peter said he sees a rate hike in December as too little too late given the ineffectual level of interest the economy has seen over the last several years, and because of the accelerated rate of inflation that’s taking place.

While the Fed is likely to raise the nominal funds rates in December, real interest rates will continue to fall because they’re being outpaced by inflation. Also thrown into the mix are other countries’ central banks, which will also likely raise their rates as well.

“Not only are we going to get higher inflation in America, but we’re going to get higher inflation worldwide,” Peter said. “It’s not just the Fed that’s going to be raising rates; it’s other central banks as well. So, on a relative basis, our rates aren’t going to go up if all the other central banks are hiking too.”

In the end, December is likely to be a repeat of last year, when markets tanked after the Fed hiked rates a quarter point.

“I still think we’re going to go back to the well of QE and that we’re going to get more stimulus. We’re going to get another round of quantitative easing. I still believe the Fed might reverse course and start cutting rates again even as inflation accelerates.”

Highlights from the interview:

“The Federal Reserve is going to have to step up to the plate big league if Donald Trump is going to want to move forward with the tax cuts and spending increases that he has promised the electorate. That’s where the markets have it wrong. They somehow think that fiscal stimulus is a substitute for monetary stimulus. It’s not. If we’re going to have larger deficits, it’s impossible to finance them unless the Federal Reserve does it. That means they’re going to have to be launching another round of quantitative easing that is much larger than the ones we’ve had in the past. Rather than being dollar positive, this is a negative for the dollar … If currency traders actually understood what was happening, higher inflation is very bad for the dollar because the Fed cannot fight it.”

“It doesn’t even matter whether we get [a rate hike] or not, but if it happens, it’s still too little too late. Rates are still very, very low. We’re still not even at 1%, even if the Fed raises rates in December. Even if they raise them again in 2017, it’s still not going to be enough. Inflation is accelerating at a much faster pace than the Fed is nudging up interest rates. Real interest rates are falling despite the Fed’s nominal increases.”

“Not only are we going to get higher inflation in America, but we’re going to get higher inflation worldwide. It’s not just the Fed that’s going to be raising rates; it’s other central banks as well. So on a relative basis, our rates aren’t going to go up if all the other central banks hiking too.”

“I think [the Fed] is going to go back to the same monetary stimulus that failed and is the reason Donald Trump is elected.  A lot of people believe that simply electing Donald Trump solves all of the economic problems that are the reason that he was elected. The problems haven’t been solved, and they can’t be solved unless we’re willing to bite the bullet and allow a painful economic restructuring that is going to be necessary for to pave the way for real economic growth.”

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