FOMC Is Bluffing; Prepare for QE4 and No Rate Hike (Video)
The Federal Reserve has a two-day meeting this week. CNBC World asked Peter Schiff what he expects the results of the meeting will be. Peter argued that the Fed will continue to bluff about raising interest rates. He believes a fourth round of quantitative easing is more likely in the next year.
Follow along with this transcript:
Peter: The bigger problem for the US market is the softening US data that came out today. And now the weakening US dollar, which I think is about to get a lot weaker as people get their arms around the real predicament that the US economy is in.
CNBC: [So what does this mean for the Fed’s two-day meeting?] What kind of message are you expecting out of the Fed?
Peter: They’re still going pretend that there’s a rate hike somewhere at the end of this rainbow. But that’s not going to happen. Maybe they will acknowledge a softening of the economy, which will be a gross understatement. Look at the horrible data that came out today. And this was April data, so you can’t just excuse this and blame it on the weather. But what people have to understand is that because of the Fed and their prior policy mistakes of keeping interest rates at zero, of all this quantitative easing. They have screwed up this economy so badly that if the Fed were to raise interest rates at any point, they would precipitate a worse financial crisis than the one they caused in 2008. So we’re not going to get a rate hike, no matter what they say. We’re going to get QE4, and the next crisis is going to be a dollar crisis.
CNBC: The difference between us not getting the rate hike in June or September or even in 2015, and QE4 – there’s a wide gulf of difference there.
Peter: Yes, but eventually the market’s going to have to wake up to this reality. All this rate-hike talk is just talk. The reason they’ve been talking about it for years is because they can’t do it. Because we’re so levered up now because of the Fed, the economy is so screwed up that we need zero-percent interest rates. But I don’t think zero-percent is low enough. I think without another dose of QE the bubble is going to pop and we’ll be back in a recession. So to prevent that from happening and to postpone the day of reckoning, we will get QE4.
CNBC: But why exactly would QE4 happen? We can’t go through this cycle for another 6 years or so. We’ve talked about how the US economy and the markets have rallied on 3-4% interest rates in the past. Why can’t it be like that again?
Peter: Because this is not the past. We have so much more debt now than we had in the past. It’s like if you’re a drug addict and you get used to a certain amount of drugs, you can’t get by with a smaller dose. You’re going to go through withdrawal. We’ve had six years of zero-percent. That’s never happened before. We can’t raise interest rates now when we have that kind of habit. If you look at the enormity of the debt on the Federal balance sheet, on corporate balance sheets. Look at the real estate prices, the banking sector. All those banks that were too big to fail in 2008 are much bigger now than they ever were and they are very susceptible to even a slight increase in interest rates, which is why the Fed won’t raise them. But you’re right. It’s not going to go on for another 6 years. We’re going to have a major economic crisis centered around the US dollar long before that 6 year time period can expire.
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