Peter Schiff: The Fed Is Spitting into the Wind

The CPI for August came in hotter than expected, ratcheting up anticipation of another big Federal Reserve interest rate hike at the September FOMC meeting. Peter Schiff appeared on the Claman Countdown on Fox News and explained why these rate hikes are too little too late. In fact, the Fed is basically spitting into the wind.

With inflation clearing not “cooling,” the markets have now priced in a 100% chance of a 75-basis point rate hike next week and a 24% chance of a full one-percent hike.

Peter said the Fed will certainly hike rates, but he doesn’t think the central bank will go for 100 basis points. But even if it did, it wouldn’t matter.

I don’t understand why markets are still surprised when you get higher than expected inflation numbers. Inflation is going to continue to get stronger even as the economy gets weaker. And in fact, the Fed actually falls further behind the inflation curve every time it hikes rates because these rate hikes are too little too late. The Fed needs to make interest rates positive to do anything to bend the curve. They have to get rates above the rate of inflation. And until they do that, they’re spitting in the wind.”

Peter pointed out another problem facing the Fed in this inflation fight. The US government keeps spending money hand over fist.

We need massive cuts in government spending, and the government is doing the opposite. We have the Inflation Reduction Act, we had the CHIPS Act. We have forgiving student loans. All of this is additional spending, which is the worst thing you want to do when you have an inflation problem.”

Northwestern Mutual Wealth Management CIO Brent Schutte also appeared on the show. He said he thinks the bottom for the markets is in and that the forward-looking data points to lower inflation.

Peter said it is possible that the market will bottom when inflation peaks.

Unfortunately, we’re years and years away from a peak of inflation. This is not 1980. This is more like 1970. This is just getting started.”

Liz asked Peter what he was buying at this point. Peter said he’s buying the same things he’s been buying to prepare for this inflation.

It didn’t just start now. The Fed sold the nation’s soul to the inflation devil back in 2008 when it did QE. And so now the devil is back to collect.”

As it has with every new round of hot inflation news, gold sold off in the aftermath of the CPI data release. Peter said investors still don’t understand that the Fed is going to lose this inflation fight and that the economy is not only in a recession, but heading toward another financial crisis.

The Fed, despite rising inflation, is ultimately going to try to stimulate the economy. And so, we’re going to have the combination of a massive recession or depression with a financial crisis and rising inflation. So, all of this is bullish for gold. It’s bearish for the dollar. So, my advice to your viewers is to tune out all the noise about how the Fed is going to succeed and how it’s going to bring inflation back down to 2%, and you better invest as if the Fed is going to fail, not succeed. This is not 1980. Powell is not Paul Volker. You’ve got to do the opposite of what worked in the 1980s. You’ve got to do what worked in the 70s, and that is getting out of US stocks, getting out of US bonds, and getting into commodities, foreign assets and gold.”