Contact us
CALL US NOW 1-888-GOLD-160

The Fed Delivers What’s Expected

  by    0   0

If you go to McDonald’s, you expect to get a hamburger. If you go to KFC, you expect to get chicken. And if you go to the Federal Reserve, you expect to get easy money.

The Fed delivered exactly what you would expect at this month’s Federal Open Market Committee meeting that wrapped up Wednesday.

The Fed reiterated its commitment to artificially low interest rates and quantitative easing to infinity into the foreseeable future, despite offering a somewhat more upbeat assessment of the US economy.

In its statement, the FOMC said it would hold interest rates at zero, “until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment.” Based on a survey of Fed officials, the central bank plans to leave interest rates at zero through at least 2023. That’s a year longer than they were indicating back in June.

The FOMC reiterated the Fed’s willingness to let inflation run hot. The central bank said inflation is “on track to moderately exceed” the Fed’s target rate of 2% “for some time.”

The Fed also plans to continue quantitative easing. The FOMC statement said it will “increase its holdings of Treasury securities and agency mortgage-backed securities at least at the current pace” over the coming months.

The easy-money spigot will remain open despite a more upbeat assessment of the economy. The Fed now projects a 3.7% decline in GDP for the year. That’s a much smaller contraction than the 6.5% decline plunge anticipated in June. The Fed also thinks the unemployment rate will drop more quickly, projecting a median 7.6% rate for 2020 as opposed to the 9.3% forecast in June.

Federal Reserve Chairman Jerome Powel said the rosier economic projections assume Congress will provide more fiscal stimulus. He said “the question is when, and how much, and what will be the contents? If we don’t get that [stimulus], there would certainly be downside risks.”

I think the Fed is being a bit overoptimistic with its economic forecast. We may see a bit of a rebound if the coronavirus remains somewhat under control. But longterm, there are a lot of warning signs. There are indications that the government lockdowns may have permanently scarred the labor market. There is trouble brewing in the subprime mortgage marketBusinesses continue to shut down and bankruptcies are at a 10-year highAmericans owe billions in back rent. There is a rising number of over-leveraged zombie companies. And a tsunami of defaults and bankruptcies are on the horizon.

The US government has already spent trillions on fiscal stimulus. The federal budget deficit for fiscal 2020 surged to over $3 trillion in August with one month left to go. That’s more than double the previous record deficit set back in 2009 at the height of the great recession. But virtually nobody is concerned about the record levels of debt.

The US stock market initially surged on the FOMC statement, but sold off into the close Wednesday. The S&P 500 and NASDAQ both closed down on the day and the Dow was up narrowly, but finished far off its interday highs.

Stock market futures were down about 1% Thursday morning. That could indicate that the current level of stimulus drug is no longer sufficient to keep the addict high. The fact that the Fed didn’t signal an increase in asset purchases disappointed some observers on Wall Street. That’s the nature of an addiction – you always need more and more drug to get the same effect.

Gold was up Wednesday, rising as high as $1966 an ounce, but sold off early Thursday as the dollar strengthened on the Fed’s upbeat economic projections.

Powell made some head-scratching statements during his post-meeting press conference, prompting Peter Schiff to tweet that “he has no idea what he’s doing.”

Powell claimed low inflation is bad because it leads to interest rates falling too low. But the Fed has already set interest rates at zero and is committed to keeping them there through 2023. So, why fret over low inflation if the goal is holding interest rates artificially low?

Peter summed up Powell’s message in another tweet.

Powell also inexplicably said that it’s amazing all of the QE and artificially low interest rates in response to the 2008 economic crisis didn’t create any bubbles in the financial markets.

“It’s ironic that on the day Powell told reporters there’s no asset bubbles Snowflake’s IPO saw its share price surge to $319, an $88 billion valuation that is more than 7 times what it was valued at in Feb. The bigger the bubble the less likely it is the Fed will acknowledge it,” Peter tweeted.

All-in-all, there were no big surprises from this month’s FOMC meeting. The Fed delivered exactly what was expected. More easy money to keep the bubble floating along. But there are signs that it still might not be enough.


Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

US Stimmy Checks Support Foreign Manufacturing Economies

What do you get when you hand Americans big fat stimulus checks after decades of offshoring the country’s manufacturing economy? Massive trade deficits.


Budget Deficit Surges to Record $1.7 Trillion in Just Six Months

The US government ran a budget deficit of $659.59 billion in March, pushing the budget shortfall to a record $1.7 trillion through the first half of fiscal 2021, according to the Treasury Department’s Monthy Treasury Statement. The March budget deficit ranks as the third biggest monthly shortfall in US history, driving Uncle Sam the biggest […]


The Powerful Case for Silver: Free Updated and Revised Report

Silver enjoyed a brief moment in the limelight earlier this year when the so-called “Reddit Raiders” turned their attention to the white metal. The spotlight has dimmed somewhat, but there are still plenty of reasons to be bullish on silver. Our fully revised and updated The Powerful Case for Silver report provides an in-depth overview […]


US Consumer Debt Spiked in February

Apparently, those stimulus checks weren’t enough. American consumers pulled out their credit cards and ran up big balances in February. According to the latest numbers from the Federal Reserve, consumer debt unexpectedly spiked in February, growing at an annual rate of 7.9%. Economists had expected a small uptick in consumer debt after a flat January, […]


Central Banks Add Over 8 Tons of Gold to Reserves in February

Despite a significant selloff by Turkey, central banks globally added a net 8.8 tons of gold to their reserves in February, according to the latest data compiled by the World Gold Council. Gold-buying by central banks slowed last year from the record pace we saw in 2018 and 2019, and that trend has continued into […]


About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
View all posts by

Comments are closed.

Call Now