Schiff on Schwab Network: The Markets Have Mispriced the Dollar

On Wednesday, Peter joined Oliver Renick on Morning Trade Live to analyze the most recent batch of Consumer Price Index (CPI) data. As usual, Peter brings a dose of reality to the markets, pointing out that Wall Street is not taking inflation seriously enough and that analysts are too bullish on the dollar.

To start, Peter explains why even a mixed CPI report like this week’s spells disaster for the economy. Even though certain goods are cheaper than expected, that doesn’t mean inflation isn’t ticking higher:

I don’t know how they could be spinning this bad inflation report as good news. Yes, the core number was one tenth cooler than expected, but the headline number was one tenth hotter. In fact, if you annualize the headline number, that’s 5% inflation! But even the government admits that the CPI rose 2.9% in 2024. That’s not close to 2%. But if you actually look at what’s happening to prices, the CRB last year was up 24%. That hardly sounds like 2% inflation.

Markets are misguided if they expect a hawkish Fed to raise rates to the dollar’s benefit. The Fed is to beholden to Washington, D.C. for this to happen:

I think the markets have got this wrong. It’s not going to be the first time that markets have mispriced something. I think that, yes, they’re right that inflation is going to be higher than was expected, but they’re wrong to conclude that that’s bullish for the dollar. See, the way the markets look at it, since inflation is going to be higher, the Fed’s going to have to fight harder to bring inflation back down, so rates are going to be higher for longer and that’s supposedly good for the dollar. … They should be hiking right now, but the reason they’re not going to do it is because the country can’t afford it.

To top if all off, investors are too comfortable with President-elect Trump’s proposed tariffs, which will ultimately hurt the dollar:

I also think the markets have tariffs wrong. Tariffs are not good for the dollar. They’re going to end up being bad for the dollar, and so the markets have priced in the effect of tariffs and they’ve priced in the wrong dynamics. So I think when the markets realize how much they’ve got this wrong, you’re going to see a big drop in the dollar.