Peter Schiff: Everything Is Great! Because the Fed Says So

The S&P 500 closed last week at an all-time record high. This is quite a reversal from the previous week. In his podcast, Peter Schiff said there has been a shift in expectations. After the June FOMC meeting, investors were jittery that the Fed was going to tighten monetary policy to fight inflation. Now the thinking seems to be that there is no inflation problem. It really is just transitory. Everything is great because – well – the Fed tells us so!

The big difference between last week and this week was last week everybody was worried that the Fed was going to fight inflation. This week they’re not worried that the Fed is going to fight inflation because they don’t think there’s any inflation to fight because they pretty much have decided that the Fed is right and that inflation is transitory.”

Since inflation is transitory, the central bank won’t have to adjust policy significantly to fight it. Of course, at some point rates will go up slightly. Monetary policy won’t always be this loose.

But the Fed is never really going to have to slam on the brakes because there is no inflation problem now or on the horizon. Sure, prices are moving up now. But there’s nothing to worry about because it’s all transitory.”

How do we know inflation is transitory?

The Fed told us so!

After all, the guys at the Fed are geniuses and they’ve never gotten anything wrong, so whatever they say, well, it must be true. So, if the Fed tells us inflation is transitory, we can take that to the bank. We’ve got nothing to worry about.”

With worries that the Fed might tighten monetary policy abated, gold gained slightly last week, but it didn’t come close to recovering its losses from the previous week.

Even though the markets are not as worried about the Fed fighting inflation with higher rates, but since everybody assumes the economy is great and there’s nothing to worry about, the stock market is making new highs, there’s no inflation, well, why buy gold?”

Meanwhile, the price of oil keeps going up and up and up. But if inflation is transitory, then the rising oil prices must be transitory as well, right? Peter doesn’t think so.

Anybody who can look at an oil chart – there is nothing transitory about this bull market. You see very little resistance in the oil chart.”

In fact, Peter said he doesn’t see much resistance until we get to $100 a barrel.

How can anybody believe this ‘inflation is transitory’ nonsense when you look at the price of oil – unless you think oil prices are irrelevant to the overall price structure, or oil prices could be rising this way in an environment where we don’t really have any inflation, with the exception of energy. Except it’s not energy. There are all sorts of commodities that are rising.”

Some of the commodities that saw the biggest spikes have pulled back, including lumber and copper. But relative to where they were before the bull market started, they remain extremely high.

Anybody who now thinks there is nothing to worry about because bull markets have had a correction doesn’t understand markets. Nothing moves up in a straight line. And a lot of these markets that have pulled back are simply now consolidating and ready to move up to new highs.”

People also point to the big GDP growth in the first quarter as a reason for optimism. But as Peter pointed out, almost all of that growth came from an 11.4% gain in personal consumption expenditures.

So, all of that GDP growth had to do with consumers spending money. And where were the consumers getting all this money? Well, they were getting it from the government in the form of stimulus checks, enhanced unemployment benefits. They were getting it by virtue of the fact they didn’t have to pay their rent. They didn’t have to pay the interest on their student loans. … So, a lot of people had a lot of extra money to spend. And they spent it, and the GDP went up. But this is not indicative of economic strength. This is actually indicative of inflation.”

The international trade numbers and the big trade deficits also reflect this economic weakness. The US is importing more and exporting less as Americans continue to spend printed money on goods and services produced overseas.

The Personal Expenditure Consumption (PCE) number was also higher than expected. This is typically the Fed’s favorite inflation measure because, as Peter explained, it understates inflation the most. Nevertheless, year-over-year PCE was up 3.9%. That’s the biggest increase since 1991.

The Fed is confident again that all of this is transitory despite the fact that there’s no evidence that actually suggests that it is. They’re just trying to make this up. They’re just trying to relate everything to COVID and the reopening. And they are completely ignoring all of the monetary and fiscal policy that also coincided with COVID and the reopening. and they’re blaming the price increases on COVID and ignoring the impact of the COVID cure, which was printing all this money, which is really the reason that we’re seeing all these price increases.”