There Are No Real Goal Posts for Raising Rates (Video)

Appearing on Yahoo! Finance, Peter Schiff underscored that the Federal Reserve has been bluffing about raising interest rates. In fact, they will continue to bluff for as long as possible until they’re forced to deal with a deflating asset bubble. He also pointed out the arbitrariness of the Fed’s supposed goal posts: previously they had said they would raise rates when unemployment officially got below 6.5%, it is now at 5.5% and they want to keep waiting. Peter said the Fed has the same confused attitude about inflation:

Highlights from the interview:

Peter Schiff: The Fed has been bluffing the entire time. It has no intention of raising rates. But it can’t come clean and admit that, so it has to pretend that it’s going to do something that it’s not going to do so it doesn’t reveal the fragility of the US economy. The truth is we don’t have a recovery. We haven’t recovered from anything. The Fed has inflated the mother of all bubbles and if they raise interest rates, they’ll prick it. They want to delay the inevitable as long as possible. Of course the longer they wait, the worse it’s going to be, because eventually the bubble’s going to deflate on its own even though the Fed doesn’t supply the pin.

Host: [What do you think of recent labor market numbers?]

PS: I don’t think people leaving the labor force in disgust because they can’t find jobs is a good sign. I also don’t think the fact that so many people are settling for part-time jobs and low-paying jobs — we have college graduates, some with Master’s degrees, cooking french fries part time. That counts as a job, but I don’t think that guy thinks he’s employed. I don’t think these numbers tell the real story. Obviously the Fed doesn’t think so either, because the Fed said that they’re not going to raise rates until the employment picture improves from here.

Host: [The Fed talked about further improvement in the labor market and the inflation rate getting closer to their two percent target. You don’t see either of these things happening?]

PS: I do think inflation is going to approach and exceed two percent, but I don’t believe the Fed will do anything. They’ll move the goal post like they did with unemployment. They used to say that if the unemployment rate got below six and a half percent, that’s when we’re going to raise rates. Now we’re at five and a half percent, and we’re still waiting. I think they’re going to be just as tolerant on inflation when inflation is two and a half or three percent. They’re still not going to raise rates, but believe me, when it’s officially at three percent, it’s going to be a lot higher than that, and consumers are really going to be feeling the pain.

Host: [Is the rate hike a 2016 story, or are you saying it will never happen?]

PS: No. They will raise rates eventually, not because they want to, because they have to. The markets give them no choice. I think what we will have is a currency crisis. Now the dollar is rising because everybody is speculating incorrectly on a rate hike. When we get QE4 and the dollar collapses and it’s in free fall, and then you have a lot of pressure on the long end of the bond market, and the Fed’s back is to the wall and they have no choice, they can’t delay the day of reckoning any more. They’ll have to jack interest rates way up. All hell is going to break lose, and it’s going to make 2008 look like a Sunday school picnic.

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