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Peter Schiff: Don’t Listen to What the Fed Says; Look at What the Fed Is Doing

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The Fed continues to talk tough about fighting inflation.  And the markets seem to be listening. But in his podcast, Peter Schiff said you need to look at what the Fed is actually doing. And it’s not doing much.

Despite a big rally in the stocks on Friday, the stock market finished its sixth consecutive week in the red. It’s the longest streak of consecutive losses since June of 2011.

Peter said despite Friday’s bounce, he still sees a lot of downside in the markets, calling Friday a day of “panic buying.”

Sometimes in bear markets, investors panic to buy. They don’t panic to sell until the end of the bear market. And despite the carnage, I have not really seen any indications of panic selling. I’ve seen more indications of panic buying, which in my mind indicates that there’s still a lot of downside to go.”

Meanwhile, gold continues to languish. During the stock rally Friday, gold dropped again, despite more bad inflation numbers.

The markets are clearly concerned, but Peter said they are concerned about the wrong thing.

What the markets still don’t get is Fed is not really going to fight inflation. It’s pretending it’s going to fight inflation. And that is the problem. Because all the people who were surprised by inflation they didn’t expect now expect the Fed to get rid of it. And the reason they are dumping gold and silver, and in particular gold and silver mining stocks — it’s not because they fear the inflation. They think the inflation is in the past. What they fear is this future inflation fight.”

Why do people think the Fed is going to go through with this fight? Because it says so.

The central bankers have said that they will do what it takes to tame the inflation dragon and bring the CPI back down to 2%, Doing what it takes means a very tight monetary policy with rising interest rates. That’s why the markets are so bearish on gold.

The tighter they perceive future monetary policy is going to get, the more problematic everybody believes that’s going to be for gold and silver, and they’re selling these gold and silver stocks.”

But Peter said even if the Fed does what it claims it will do in terms of raising interest rates and shrinking its balance sheet, it still won’t be enough to bring inflation back down to 2%.

In fact, it’s barely going to reduce the upward trajectory, let alone bring it all the way back down to 2%. And if the Fed actually tried to get inflation back down to 2%, it would not only send the economy into recession, but it would create a financial crisis worse than 2008. The markets still don’t get that. I don’t know why they can’t think that far ahead. All they can see is the Fed is claiming it’s going to fight inflation and it’s going to jack up interest rates. And so, for some reason, they believe that this is going to succeed.”

There is also this myth that the US economy is strong enough to handle the bitter medicine the Fed will have to deliver in order to get inflation under control, despite all the signs that the economy isn’t as strong as everybody imagines.

When the underlying weakness of the US economy is finally laid bare, then all this tough talk about fighting inflation is going to go away because then the Fed is going to concentrate on its other mandate, which is the economy. … Once people start losing their jobs in the recession, then the Fed is going to forget about inflation and start focusing on employment. For some reason, the markets aren’t there yet.”

This is why every time the markets get surprised by hotter than expected inflation, they just assume the Fed is going to have to fight harder.

It never occurs to them that it means the Fed has already lost the fight and it’s going to surrender.”

Peter reiterated that if the Fed’s actions don’t indicate it’s serious about fighting inflation.

I’ve said this many times. It wouldn’t just be talking about fighting inflation. It would be fighting it right now.”

But according to the latest data, the Fed balance sheet expanded by another 2%. In effect, this is more gasoline on the inflationary fire.

If the Fed has acknowledged that the balance sheet is already too big and it needs to be reduced, why are they still making it bigger?”

Why wait until June to begin quantitative tightening? Why are interest rates still below 1%? If we really have an inflation emergency, why so much talk and so little action from the Fed?

The fact of the matter is you’ve got to look at what the Fed is doing, not what the Fed is saying. They have to talk tough. … It’s the opposite of the Teddy Roosevelt strategy. They don’t have a stick. They can’t really fight inflation. So, they have to talk tough as if they’re going to fight it, because they’re hoping their tough talk will do the fighting for them, and they won’t have to reveal the fact that they don’t really have a stick.”

In this podcast, Peter also talks about Jerome Powell’s reappointment as Fed chair, consumers borrowing to make ends meet, and oil positioning for another big move up.

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