Peter Schiff Deconstructs Janet Yellen’s Q&A (Video)

Janet Yellen held a press conference yesterday after the Federal Open Market Committee’s June meeting. Peter Schiff cuts through the doublespeak to focus on the real message behind Yellen’s official statements.

Highlights from the video:

“Today was the day when many people thought the Fed would finally raise interest rates from zero, where they’ve remained for almost seven years. They’ve been referring to the process as a lift-off… But I don’t think that’s the proper metaphor. ‘Lift off’, when you come to a spaceship, would imply that once rates go up, they’re going way up. Like they’re going to the moon… But Janet Yellen herself… went out of her way to remind people that even if the Fed were to raise rates by a quarter of a point, don’t expect them to raise them again any time soon, or to raise them by very much…

“Now the June rate hike is off the table, and of course everyone is still focusing their attention on September, when I think the Fed will once again disappoint and fail to raise interest rates. But more important than their official statement, which of course they painstakingly review every word, I think you can glean more from the question and answers, which are a little bit more off-the-cuff than the prepared remarks. I believe again the prepared remarks are just a smokescreen. What the Fed is trying to accomplish there is pretend that its monetary policy has worked and that we have a legitimate recovery, so that they can actually raise rates. When in fact, they can’t do that because they don’t have a real recovery…

“[The first question was] about the fact that there are a lot of people, including the IMF and some economists… who think the Fed should raise interest rates in 2016 and not 2015, as everybody believes Janet Yellen is planning to do. So the reporter asked, ‘Why are those people wrong?’ … Instead of telling the reporter why they’re wrong, she basically ducked the question. In fact, she pointed to the dot plots, which is the FOMC’s members estimates of where they believe interest rates will be at some point in time at the future… What she was saying was that the idea that the Fed would raise rates at some point this year was based on these dots, which she reminded the reporter are mere projections. She said that this reflects the forecasts of the FOMC members… Janet Yellen admitted that if these forecasts are wrong… then no rate hikes are coming…

“I thought an even more revealing comment was an answer she gave to a question from Steve Liesman, who I joke about quite a bit. He’s the senior economist over at CNBC. He asked a question, but he didn’t really appreciate the answer very much. He didn’t pick up on this… He asked her specifically, ‘What do we need to see happen in the labor market or with the inflation rate to justify a rate hike?’ Remember, the initial target when it comes to inflation or unemployment that was created by Ben Bernanke. He said 6.5% unemployment was the trigger. We get to 6.5%, we can start raising rates. We’re at 5.5% and they’re still at zero. So that target was moved. The minute that he threw down that gauntlet… I said on my video blog that he’s going to move it…

“The interesting part of [Janet Yellen’s] noncommittal answer. She said that the labor markets had clearly improved substantially over the years. Obviously the unemployment rate has gone from 10% to 5.5%. In her mind, this is a big improvement. Of course, there are a lot of aspects of the market that have gotten worse that maybe she doesn’t want to acknowledge. But let’s accept the fact that Janet Yellen believes that the labor market has improved substantially over the years…

“But this is what she told Steve Liesman. She said, ‘Even though we’ve had all these improvements, it’s not enough.’ She said, ‘I need to see further improvements in the labor market before we begin to raise rates.’ Before we begin. The first rate hike – in order for that to happen, Janet Yellen is going to have to see more improvement in the labor market…

“If she really was planning on raising rates in September, how much improvement in the labor market does Janet Yellen really believe is going to occur in the next three months? I can’t imagine very much. It’s been years. How much more can we get in three months? If the labor markets are too weak to raise rates today, what’s going to change in three months? In fact, there’s a good chance the labor markets could be weaker in three months…

“If Janet Yellen is basically saying that the first rate means nothing, because it doesn’t necessarily mean that it’s going to be followed up by another rate hike. If it’s not the beginning of normalization, if it’s not the ‘liftoff’ that everybody thinks… what’s the point of it? What Janet Yellen is admitting is that this rate hike is just symbolic. That the Fed really has no intention of following through with additional rate hikes, even if they do a symbolic first rate hike…

“Somebody asked her about the Federal Reserve under Alan Greenspan. These Fed Governors are very reluctant to criticize anybody. They don’t want to criticize their predecessors, because of course, they make all the same mistakes. But Janet Yellen came very close to doing that with respect to Alan Greenspan. She was asked about the methodical way that Greenspan raised interest rates from 2004 to 2006. That was very slow and predictable. Every time they met, it went up a quarter point. It started at one and ended up in the fives… She basically said that with the benefit of hindsight, it appears as if it would have been better if the Fed raised rates quicker. It was a mistake to move as slowly as they did…

“It’s not just the benefit of hindsight. Real time, I was very critical of Alan Greenspan. In television, in my writings. From 2004 to 2006, I specifically said that the slow increases in interest rates simply allowed the real estate bubble to get bigger. This was the very same bubble that both Alan Greenspan and Ben Bernanke at the time denied even existed. I knew it was there, and I knew these slow rate hikes were making it even bigger…

“Janet Yellen is arguing that the Fed made a mistake. They raised rates to slowly. Given that, what is Janet Yellen now proposing to do? Now she wants to normalize interest rates, only she has to bring them up from zero, where they’ve been for six, seven years. It’s not just 1%, where they were for a year and half. What is she telling people she’s going to do? She’s going to bring rates back up even more slowly than Greenspan did. So if Greenspan’s mistake was going to slow, how does she rectify that mistake by going even slower? What kind of distorted Fed logic is this? …

“Look at what happened in the foreign exchange market. There was a knee-jerk reaction where the dollar spike up initially, as soon as the FOMC statement was released. There was a reflexive, ‘Oh let’s buy the dollar!’ There’s all these dollar bulls out there that think the dollar is going to go up when the Fed raises rates. All the gains of the dollar already happened… “

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