The Federal Reserve Has Checked Us Into a Monetary Roach Motel (Video)
With May’s shockingly bad jobs report, it’s pretty much a forgone conclusion that a June Federal Reserve rate hike is off the table. After the report came out Friday, Peter Schiff stuck a fork in the June hike possibilities in his SchiffReport Video Blog.
Now with the June rate almost certainly a no-go, pundits are starting to look ahead to later in the summer or this fall. But Peter, along with some like-minded people such as Jim Grant, believes the Fed won’t raise rates at all. It simply can’t. In fact, Peter argues that the next move will be rate cuts and another round of quantitative easing:
This is just the beginning. When people actually figure out the box that we’re in – because they still think the Fed is going to raise rates. Now they’re saying ‘OK, maybe they’ll raise rates in July, or maybe they’ll raise rates in December.’ Wait until the conversation turns to rate cuts. Wait until the conversation turns to QE4, or negative interest rates. Wait until people think that I was right from day one, that the Fed checked us into a monetary roach motel, that there is no way out of this monetary policy.”
Some mainstream people are starting to figure it out and see the reality of the situation. In a recent MarketWatch editorial, Jeff Reeves made a good case that the Fed won’t raise rates at all this year – or even next:
The sad reality is that until and unless the US posts employment metrics that are consistently strong, or inflation rises significantly and stays elevated, there simply isn’t a case for hiking interest rates this month, this year — and even next year.”
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Reeves makes the point that central bankers and many market analysts tend to be way too aggressive in their rate hike predictions:
Like clockwork, policymakers and pundits predict higher rates in the medium-term — and are always proven wrong. Consider the so-called ‘dot plot’ that polls Federal Reserve officials on where they expect rates to be in the future. Policymakers in December 2015 expected the benchmark fed funds rate to be around 1.375% at the end of 2016 with a median forecast of 2.375% at the end of 2017. That was actually down significantly from just six months prior, with previous ‘dot plot’ forecasts in June 2015 predicting a 1.625% rate by the end of 2016 and 2.875% by 2017’s close. And a year before, in December 2014, the Fed predicted a 2.5% rate at the end of 2016 and 3.625% at the end of 2017.”
Here’s the takeaway – we need to focus less on what this or that Federal Reserve official says, and more on actual economic realities.
Peter said the Fed will eventually get it, and when they do, it won’t be pretty.
Unfortunately, before the Fed finally gets religion, the dollar is going to lose a lot more value, gold is going to go a lot higher, and eventually all of the people that believed this nonsense and all of the people that put their faith in the Federal Reserve, that believed these phony numbers, they are going to come to the same conclusion that Puerto Rico’s creditors finally came to – that we’re broke. We can’t pay our bills. The recovery is an illusion. It’s a gigantic bubble and that bubble has already burst. The air is coming out and pretty soon it is going to come out a lot quicker.”
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