Losing “Patient” Doesn’t Mean the Fed Has Lost Patience (Video)
Peter Schiff responds to the hubbub surrounding the Federal Reserve’s dropping of the word “patient” from its policy statement. Janet Yellen’s diction is meaningless, but if you look closely it also reveals that the Fed is far more dovish than people think. The Fed can play all the mind games it wants with the markets, but it can’t stop the inevitable crash of the US dollar. Remember — when you know how the game is going to end, play for the endgame.
Highlights from Peter’s video:
“Everyone was concerned… about whether or not the Fed would remove the word ‘patient.’ Remember, ‘patient’ has been in there ever since the Fed removed the phrase ‘considerable time period,’ with respect to when they would get around to raising rates. Something which I believe they have no intention of actually doing, but the last thing they are going to do is actually admit that. So they play these word games…
“They did remove the word ‘patient.’ Although the Fed did go out of its way to say they would be just as patient without the word as with the word. In fact, in the press conference… Janet Yellen said, ‘Just because we removed the word ‘patient,’ doesn’t mean that we’re impatient.’ Well, what does it mean and why bother to remove it if it doesn’t say anything?
“In fact, if you read the entirety of the Fed statement, the Fed is more dovish now than it was before. The Fed is more concerned about the US economy today than it was when the word ‘patient’ was still there… She wants to maintain this fiction that it’s still possible [that the Fed will raise rates]…
Clearly the Fed is more concerned about the economy today. They ratcheted down their growth estimates. So the Fed now thinks the economy is going to grow more slowly than it did when they were patient. The reality is that the reduction in their estimates are not nearly as large as they should be. The growth rates are going to be much lower than these revised estimates.
“I think what should really be causing people to wake up and smell the coffee when it comes to the Fed is what Janet Yellen said about the labor market. Janet Yellen said… that the Fed is not ready to raise rates until they see improvement in the labor market. Haven’t we already seen improvement in the labor market? What have we been seeing with all of these numbers that Wall Street has been celebrating? The February jobs number was the most recent catalyst for the conclusion that the Fed was about to hike rates in June. We created 290,000 jobs in February. More than estimated. We’ve been creating over 200,000 jobs a month for a year. And the unemployment rate went down to 5.5%. That’s the lowest it has been since Obama has been president. Apparently that’s not enough for Janet Yellen…
“If the employment market is still so weak that we can’t raise interest rates from zero — we’re not talking about jacking them way up! She’s talking about taking them from zero to 0.25. The slightest increase…
“I think that the jobs numbers are going to turn around. They’re the outlier. All the other economic data that we’ve been getting has been very week. I’ve been highlighting that…
“People think we have a legitimate recovery. We don’t. If we did, the Fed would have already raised interest rates years ago. In fact, Janet Yellen said that even at this mythical point in the future when the Fed may in fact raise rates, she said that she’s still going to keep them a lot lower than they should be. Why? Why do we have to keep interest rates artificially low? …
“[Today] was the biggest drop in the dollar in years. The dollar lost about 3% of its value across the board. Gold was up not much. 20 bucks. Oil was up a couple of dollars. I think had Janet Yellen left the word patient in there, it probably would have been even worse for the dollar. Because that might have indicated that the Fed was even more concerned than they are letting on to be…
“While she’s waiting for the labor market to improve to some ideal level that she can’t really quantify, but she’ll know it when she sees it… While she’s waiting for that, something is going to happen. That’s going to be a recession and a reversal. Now the unemployment rate starts to move up, we destroy non-farm payroll jobs and then what is she going to do? … Then the rate hikes are off the table indefinitely…
“If we go back into recession, what is the Fed going to do? Nothing? Of course not. They are going to do QE4. They’ve had that card up that sleeve the whole time… They’re bluffing that they’re going to do something else…
“The Fed is not going to raise interest rates until the markets leave it no choice. Until there is an all-out currency crisis. Until the dollar is collapsed… It’s going to have to be in free-fall. That’s when the Fed is going to act. Of course, it’s going to be too late…
“When the dollar turns, that’s what’s going to lift commodity prices… When these commodity prices really start to surge, they’re not just going to surge in dollars. They’re going to surge in all these currencies. Then all these countries, all these central banks around the world that jumped to the wrong conclusion, that saw this drop in commodity prices and panicked… ‘Oh my god, deflation, what are we going to do?’ … They’re going to get more than they bargained for… Twenty odd some central banks have cut interest rates here in 2015. Probably by 2016, those same central banks are going to be hiking rates to put out the inflationary fires that they lit on purpose. The one central bank that won’t be doing that is the Fed. They’re going to be doing QE4….
“What happens to the US dollar in that environment? It fall through the floor… The Fed can’t pretend anymore…. and a small interest rate hike is not going to cut it. Remember, Russia just had to jack interest rates to 17% to save the ruble. Paul Volcker had to raise interest rates near 20% to save the dollar in 1980. The dollar is in a lot more trouble today than it was then…
“While other people have been chasing bubbles and buying dollars, our strategy is to hold on to real assets, foreign assets, foreign stocks, precious metals. The fact that we’ve had to wait so many extra years for the payday, in my mind it means that the payday is going to be that much bigger, because we had to wait so much longer to receive it… All of the problems that caused me to adopt investment strategy that I did are now worse than ever…
“When you understand how the game is going to end, you play for the endgame. Don’t play for all the short-term swings, because nobody is really smart enough to trade them. Maybe some people are, maybe some people think they are, but most people learn the lesson the hard way. The lesson that I’ve learned is that when you understand the endgame, stick to your strategy. Ride it out and have the last laugh. Bubbles often make you decide between when you want to look like a fool. Do you want to look like a fool before the bubble has popped, or do you want to look like a fool after the bubble popped?”
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