2015 May Be Worst Recovery Year; Revise Your Rate Hike Expectations (Video)

Peter Schiff’s digs into Friday’s jobs numbers and the great expectations for a September rate hike from the Federal Reserve. In this Schiff Report, Peter walks us through the options Janet Yellen has right now and the repercussions they will have on the economy and US stocks.

This year, 2015, is probably going to be the weakest year of the entire recovery. And that’s with interest rates at zero for the entirety of the year. If the Fed really begins to raise interest rates, what’s going to happen in 2016? Obviously, we’ll be in a recession. If the Fed raises rates now, we’ll be in a bear market in stocks…”

Highlights from The Schiff Report:

“[Based on the Friday release of non-farm payroll numbers], it seems everybody believes that a September rate hike is now a lock. That somehow this report has removed any remaining barriers between us and the September rate hike… We’ve been at zero for almost seven years. It’s been nine years since the Fed last hiked rates. I wonder if they still remember how to do it.

“For some reason, this report seems to have cleared the way. I don’t know why. There’s nothing special about this report. If the Fed has been looking for an improvement in the data, certainly the July non-farms payroll report isn’t an improvement at all. At best, it’s more of the same. Actually, it represents, I think, a weak report relative to what we’ve been getting. We’ve been getting more than 200,000 jobs just about every month this year. In July we got 215,000. What’s so great about that? It was just slightly ahead of the 212,000 that the consensus was, but there were people looking for a much stronger report than that… It represents a decline from the 231,000 jobs that were created in the prior month. It seems like we’re going in the wrong direction. If the data wasn’t good enough for the Fed to raise rates in the past, why is it good enough now, when it’s worse? Is there something else about this jobs report? …

“The mass exodus from the US labor market continues. Another 144,000 Americans marched off the field, out of the labor market. The number of Americans no longer working hit a new record high. That number now stands at 93,770,000. So if the Fed is data dependent, and particularly the data they say they are depending on is the labor market, there is no improvement in the July number that would validate a rate hike, if the condition was an improvement in the labor market…

“It’s also not there in the economy overall. We got the most recent numbers of GDP… The GDP for the second quarter were much lower than what the consensus was. They were looking for 3%, we got 2.3%. Yes, we did revise the first quarter up, but not nearly as much as everybody was expecting, including the Fed. So if you look at the entire first half, the economy grew by less than 1.5%. Again, less than half of what the Fed was looking for or expecting when the year began…

“If she does raise them, she’s already prepared the market for a tiny raise. Maybe 25 basis points. Maybe not even that much. They can raise rates 10 basis points, 15 basis points. And Janet Yellen has also said that if she does raise interest rates, she’s not going to raise them again for a long time. She’s going to be very cautious. She’s going to assess the situation. She’s going to make sure the economy can handle higher rates before she raises them again. That alone ought to raise an eyeball. We’re talking about raising rates from zero to some tiny amount above zero, yet the Fed is worried that if they do that, it might jeopardize the recovery. What kind of recovery would be jeopardized by one quarter of one percent raise in interest? Obviously, just a bubble…

“It’s interesting to look at how the markets reacted to the jobs data and now the certainty that rates are going up. The dollar actually sold off. It didn’t sell off dramatically, but it was lower across the board on the day and gold rose a little bit. Remember, higher interest rates are supposed to be bullish for the dollar. So why didn’t the dollar rise on a jobs report that everybody agrees now makes a rate hike a lock? There is an old trading adage – ‘You buy on the rumor, you sell on the fact.’ When you anticipate an event, you buy into that anticipation. When the event is realized, then you sell, you unwind your positions…

“What’s more interesting is the reaction in the stock market. The Dow Jones was down again. It closed well off the lows… That was the seventh consecutive day the Dow Jones has dropped. This is the longest losing streak in the Dow in about four years. I think we’re off just under 6% now from the high in May. The fact that the US market is still falling, shows me that maybe while the currency markets have factored in a rate hike, the equity markets have not…

“When they came out the last GDP numbers, they revised down the last 3 years. They took every year – the average went from 2.3% to just 2%. It was a significant reduction. So the Fed was just told the economy was much weaker than you thought. You didn’t raise rates when you thought the average growth rate was 2.3%, now you found out it was only 2.0%, but your’e still going to raise rates? All of this shows the Fed is raising rates despite the fact it committed to raising rates if the economy was strengthening… If the Fed is going to raise rates while the economy is weakening, it’s a whole different ball game…

“This year, 2015, is probably going to be the weakest year of the entire recovery. And that’s with interest rates at zero for the entirety of the year. If the Fed really begins to raise interest rates, what’s going to happen in 2016? Obviously, we’ll be in a recession. If the Fed raises rates now, we’ll be in a bear market in stocks…”

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