Fed’s Leaked Forecasts Reveal Rate Hike Is a Fantasy (Video)
On Friday, the Federal Reserve accidentally published the economic forecasts of its staffers, which normally remain private. The numbers reveal that the Fed is painting a much rosier picture of the United States economy than they publicly admit. Peter Schiff dug into these numbers during his podcast published on Saturday. Use the chart below to follow along with Peter’s analysis. Peter also discusses the gold market, which he believes is setting itself up for a massive short squeeze.
Highlights from the podcast:
“The Dow Jones just had its worst week since January. We closed the week at 17,568, down 518 points on the week. Friday’s drop alone accounted for 163 points…
“If you look at all the economic data that’s been coming out this year, it’s all negative, whatever it is: retail sales, capital investment, industrial production, capital utilization. The list goes on and on and on. All the economic measures that are normally rising when the Fed raises rates are now falling, every single one of them. In fact, there is no precedent for the Fed ever raising rates when all of its key economic indicators are going down. Normally, the Fed would try to fight that by cutting rates. If all your economic indicators are falling and your economy is slowing down, the Fed would try to push against those forces. It would try to stimulate the economy. Instead, the Fed is saying, ‘We’re going to implement an economic sedative…
“Probably the most interesting part of Friday’s market action was this leaked report from the Federal Reserve. This supposedly came online by accident. What it showed was the economic forecasts of the Fed staffers. This is not the FMOC, these are the people that the Fed employs. They make their projections, then they share those projections with the FOMC…
“The projections came out. First of all, the growth projections are way below what the Federal Reserve is publicly saying. Either they don’t believe the work of their own staffers, in which case why not just fire them if you think they’re incompetent. Or they believe it and they’re afraid to admit. But now they’re stuck with it, because somehow this stuff ended up on the internet.
“Let me go over some of the projections, which are so outrageous. First of all, the projections go all the way out to 2020. So the staffers are saying what the GDP is going to be, what inflation is going to be, what employment is going to be, and what interest rates are going to be, every year from now until 2020. How the hell do they know? That’s the most insane part of it. These idiots actually think they know what GDP growth is going to be in 2020. They don’t even know what it’s going to be in 2015…
“Look at what they’ve got for real GDP. 2015, this year, they’ve got 2.31, which I still think is overly optimistic, but it’s still way below the official forecast. [See chart above.] That means over the five-year period, they have the US economy growing below 2% on average. They’re talking publicly about 3%, 4%. Yet privately, the numbers that they have are showing under 2%. If the Fed believes their staffers, and economic growth is peaking out in 2015, 2016, and then slowing down to 1.74 by 2020, why would the Fed be raising rates? It doesn’t make any sense.
“What makes even less sense is their inflation numbers. [See chart above.] Not once do they have their inflation rate hitting their 2% target. It’s ludicrous to assume there’s only going to be 1.94% a year in 2020, but that’s their assumption. I think they just want to say inflation is always below 2%, so they pick these numbers out…
“Here’s their Fed Funds numbers. [See chart above]… Look what they have into the Fed Funds rate at the end of 2016. 1.26. That’s still ridiculously low. That’s still 0.26% above the ridiculously low rate that Alan Greenspan brought interest rates down to to create the housing bubble. Then, by 2017, they only see rates going to 2.12. Which means they raise rates 1% over the entire 2017…
“That shows you how little confidence the Fed has in the economy. They’re predicting sub-2% growth for five years, inflation supposedly below their target, and they’re barely raising rates…
“One of the most ridiculous assumptions is unemployment. This is what these clowns predict for unemployment. 5.13% this year… [See chart above.] 5.16 in 2020… How do they know? They decided all of a sudden that unemployment is going to go up from 5.15% in 2019 to 5.16% in 2020? The whole thing is a joke, but it shows the unemployment rate really doesn’t improve very much. It stays exactly where it is. So if Janet Yellen is saying we’re not going to raise interest rates unless the employment picture improves, well their own projections show the unemployment rate doesn’t go anywhere…
“They are projecting the economy to grow over the next five years at a slower pace, slower pace, than it grew over the preceding five years. So if the Fed kept interest rates at zero during those five years of stronger economic growth, why would the Fed now be raising interest rates, when its own projections are calling for economic growth over the next five years to be slower… By their own forecasts, the economy is stuck on the launch pad. There is no real lift-off here, so why would they be raising rates? Of course, the answer is they’re not…
“If you are an American citizen earning the median income, it’s going to take 10 years of your income to buy a house. Now, if you go back to 1950 and look at those numbers, it was only 2 times. You needed about 2.2… Today it’s a little bit more than 10… Think about that. Housing is now five times more expensive than it was in 1950. And what has the government been trying to do since then? Trying to make housing more affordable… Everything the government does, it doesn’t just fails – it achieves the opposite…
“The rule of thumb used to be in the lending industry that a bank would lend you no more than twice your annual income to buy a house. That means that a lot of mortgages were for less than 2 times your income. That was kind of the maximum… Now… you need to get a bank to loan you 10 times your income. What bank is going to do that? Only with a US government guarantee… That’s why home ownership is at 20, 30 year lows…
“Gold prices continued to be under pressure throughout the week, hitting five or six year lows until Friday. Gold was down 10, 12 bucks early in the morning, and by the end of the day it was up about $10. This was potentially a reversal. It wasn’t such a spectacular turnaround that I can say, ‘Aha, the bottom is here for sure.’ But this week sure did look like capitulation…”
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