Episode 1000 of the Peter Schiff Show: Powell Tanks the Market

On the special 1000th episode of the Peter Schiff Show, Peter tackles another week of economic data and, most importantly, the December FOMC meeting, in which another 25 basis point rate cut was announced. Peter spends the bulk of this episode discussing new ramifications for monetary policy and domestic politics, and he offers his analysis of why the market reacted poorly to the Fed announcement.

Peter starts by summarizing Wednesday’s stark decline in the markets, noting its almost-historic size:

The Federal Reserve lowered interest rates today by 25 basis points, and the only reason that the Fed did this was because the markets expected it and Powell didn’t want to disappoint the markets. Well, the markets didn’t get the memo because the Dow Jones dropped over 1,100 points today. It was down two and a half percent on the day, and that was the best performing of the stock market indexes, although the Dow was down today for the tenth day in a row. … If we’re down again tomorrow, we’ll tie the all-time record, and if we’re down again on Friday, we would break a record.

Between earlier rate cuts, the election, and hype surrounding crypto and AI, investors have blinded themselves to the risks at play in an economy plagued with debt and inflation:

Nobody was bearish, everybody was bullish, and the market could only go up, and to me it looked like a top. Everybody is wildly optimistic and nobody could see the risks, and there were a lot of risks. … It was overlooking some very significant headwinds in the fact that we actually have a weak economy with rising inflation and rising interest rates. This is a toxic combination for the markets.

In a rare move, Powell signaled a relatively hawkish position on future rate cuts, despite the inflationary pressures he’s presided over and helped create:

With Powell maybe inadvertently pulling the rug out from under the stock market—the rate rug—the market collapsed, because even though investors were prepared for the 25 basis point cut, I guess they weren’t prepared for what came next. One of the things that Powell indicated was that there will be fewer rate cuts in 2025 than the markets anticipated.

Powell justifies this element of the announcement with appeals to the labor market, which has been the subject of constant downward data revisions:

One of the reasons that Powell thinks the labor market is strong is because of all these jobs that we’ve created. Well, most of them have been eliminated from creation because they were never created in the first place. Powell is completely ignoring the massive downward revisions in prior payroll numbers, and more downward revisions are coming.

Reducing the number of rate cuts in 2025 is welcome, but it’s not nearly hawkish enough. Powell has been an inflation dove from the start, and he’s wrong if he thinks his Fed has been anything but easy on inflation:

Powell keeps talking about the fact that, ‘We’ve got tight money. We’re well into restrictive territory.’ We never even came close to restrictive territory!  We have easy financial conditions. Why do you think the Nasdaq just hit an all-time record? You think that happened because we got tight money? It’s because we got easy money. Do you think Bitcoin went up to 109,000 because we got tight money? No. Everything is behaving like we got loose money. Look at the rates! 

The Fed is once again between a rock and a hard place. It must either increase its inflationary policies to bring down long-term rates, or allow said rates to send the economy into recession:

That’s why I think the Fed’s going back to QE. The only way they’re going to get a meaningful reduction in long-term rates, at least short-term—I mean a short-term reduction in the long-term rates—is if the Fed buys those bonds, and the only way the Fed is going to be able to buy those bonds is if they print the money to do it. And so they got to go back to QE. Now it’s not going to work long-term. I think that’s going to blow up in their faces, but you know they’re going to do it anyway because they got nothing else.

For additional analysis of the Fed’s policy path in 2025, listen to Peter’s recent interview on the Wealthion network with Anthony Scaramucci!