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Peter Schiff: Jerome Powell Couldn’t Be More Wrong

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The new Fed chairman has swooped into Washington D.C. like a hawk this week.

In his first testimony before Congress, Powell talked up the economy. He’s also indicated he plans to continue pushing interest rates higher. In fact, many analysts are now talking about four rate hikes in 2018, with the first on tap for this month. Powell said his personal outlook for the economy has strengthened since December, and he sees little risk for a recession.

In his latest podcast, Peter Schiff said Powell couldn’t be more wrong.

Peter called the whole congressional testimony thing “a show,” noting that nobody in Congress really cares what the Fed chairman says. The only people really paying attention are people on Wall Street and they weren’t particularly thrilled with Powell’s plotline.

Powell oozed optimism during his testimony at the House.

The next couple of years look quite strong. I would expect the next two years to be good years for the economy.”

Peter said that’s no shock.

What does anybody expect? I mean, how would he not be bullish on the economy? He’s on team Trump, right? He’s a team player. Just like Ben Bernanke said he was a team player when he was talking about how great the economy was under Bush, well Powell has now joined a similar team – a Republican team. He’s a Republican, so the Republican narrative is everything is great. The economy is booming, and so Powell is going to tow that same line.”

The markets didn’t like the upbeat tone. Why not? Investors are reading between the lines and seeing rate hikes. The Dow dropped 380 points on Wednesday after plunging 299 points the day before. It fell 4% in the month of February, the first monthly loss since 2016. Wall Street apparently isn’t really keen on having its easy-money spigot shut off.

Peter said the real irony here is that Powell’s view of the economy is totally wrong.

Powell is talking about the economy getting stronger – it’s not getting stronger.”

Peter pointed out that at the same time Powell was talking up an economy so strong it was in danger of “overheating,” the Atlanta Fed was releasing its latest downward revision in Q1 GDP. Currently, the bank projects a 2.6 growth rate. The last estimate was 3.2 and just three weeks ago, the Atlanta Fed was talking 5.4 GDP growth. That’s better than a 50% reduction in the estimate in less than a month.

Of course, when the estimate was at 5.4, everybody was talking it up. It was all over the financial media. Now, hardly anybody is talking about the much less impressive 2.6.

Peter said he still thinks it has a long way to go – down.

I think it’s still in orbit. I think we still have to see more revisions. In fact, if you look at the economic surprise index, we keep getting more and more bad news that comes as a surprise.”

Peter went on to say he thinks the Fed is actually wrong on two counts.

Powell is talking about how the economy is going to be so strong, and that inflation is going to stay under 2%. He’s confident that it’s going to get back to 2%, but he doesn’t think it’s going much higher. So, the Fed is wrong on both counts. They’re wrong in thinking the economy is going to keep growing. It’s not. Growth is going to contract and we’re heading to recession. And they’re wrong their belief that inflation is contained at 2%. It’s not. It’s going much, much higher than 2%.”

In other words, we’re heading for the stagflation we saw in the 1970s. Peter said that’s not an abnormality. That’s the norm.

Weak economies are also apt to have rising prices because they don’t have the production. But we’re going to have both. We’re going to have stagnation, recession, and we’re going to have inflation. So, Powell couldn’t be more wrong.”

Peter said the real problem is going to be when the markets figure out what’s really going on. They still believe all of these rate hikes are coming down the pike. That’s why the dollar has gained a little strength and gold isn’t going anywhere.

When the markets figure out we’re not going to get all the growth, which means we’re not going to get all the rate hikes, that’s when the dollar really tanks. And of course when the Fed has to come to the rescue of both the economy and the markets with more QE and rate cuts, that’s when the bottom drops out of the dollar and that’s when the roof is blown off of the price of gold.”

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