Peter Schiff: The “Transitory” Inflation Narrative Is Dead!

The transitory inflation narrative is dead.

During an appearance before a Senate committee along with Treasury Secretary Janet Yellen Tuesday, Federal Reserve Chairman Jerome Powell said it was time to retire the word transitory. As Peter Schiff explains in his podcast, Powell came close to admitting he was wrong. But the question remains — what is the Fed going to do about this non-transitory inflation?

Powell did say the central bank may need to speed up its asset purchase taper to tamp down inflationary pressure.

At this point, the economy is very strong and inflationary pressures are higher, and it is therefore appropriate in my view to consider wrapping up the taper of our asset purchases, which we actually announced at the November meeting, perhaps a few months sooner. I expect that we will discuss that at our upcoming meeting.”

But will that really slay the inflation dragon?

The markets apparently think so. Powell’s comments sparked a big selloff in stocks. The Dow Jones was down 652 points. This follows on the heels of rebound Monday after another big selloff on “black and blue Friday.”

Friday’s stock market plunge was due to fear of a new COVID variant, but in his podcast, Peter Schiff said the fact of the matter is the stock market is “a gigantic bubble” in search of a pin.

So, when it finally finds one, it’s not really the pin’s fault. It’s the bubble’s fault. Because all bubbles eventually find a pin. So, it doesn’t really matter what ends up being the pin. What matters is the bubble.”

Peter said he thinks investors are finally starting to figure out that the stock market is completely dependent on the Federal Reserve.

It’s the Fed’s monetary supports upon which the entire stock market rests. … It’s the artificially low interest rates that justify these inflated stock market values. So, if you take that away, well, then there’s nothing beneath the market but air.”

In his prepared statement, Powell acknowledged that the omicron COVID variant could slow economic growth. He also said it could exacerbate labor shortages and put even more strain on the supply chain. That could put additional upward pressure on prices. Although he didn’t use the term, Powell said we could have stagflation on the horizon.

Even though Powell himself didn’t actually use the word stagflation to describe the dilemma, that’s basically the dilemma he described — weakening economic growth and more upward pressure on prices.”

So, what is the Fed to do? Is it going to ease policy in order to stimulate economic growth? Or will it tighten to fight inflation? The Fed has been caught between this rock and a hard place for quite some time. Now it’s nearing decision time.

The markets interpreted what Powell said and didn’t say during the Q&A as taking the hawkish, inflation-fighting position.

Up to this point, the Fed has stuck with its transitory inflation story. But on Tuesday, Powell went off-script. He said, “It’s probably a good time to retire that word [transitory] and try to explain more clearly what we mean.”

So, it’s time to retire the word “transitory.” Why?

Well, because it’s not true. And it’s never been true. That’s the Fed’s way of admitting it was wrong.”

Peter said Powell basically admitted he was wrong without directly admitting he was wrong. And he said the last thing the Fed really wants to do is explain things more clearly. Transitory was clear — the Fed was trying to convince you rising prices were temporary and not of any real concern.

The problem isn’t that the Fed wasn’t clear. The problem was that the Fed was wrong. That was the real problem. And the reason that the Fed became unclear is because when it first became obvious that the Fed was wrong, that’s when the Fed tried to change the definition of transitory so they could still look right. That’s what created the confusion. It was Fed trying to confuse the public as to what transitory means. Now, what they want to do is come up with a new lie to confuse the public again. Because the transitory lie ain’t working anymore because they’ve twisted it into too big a pretzel and now they need something else.”

As Powell made these comments, the stock market began to sell off. Gold had been up about $20 earlier in the day, and it reversed course. And the dollar rallied. Peter said the markets can’t seem to differentiate the difference between talking about a problem and actually doing something to solve it.

It doesn’t matter that the Fed acknowledges that inflation is a bigger threat than it thought. What is it going to do about it? How is it going to adjust policy?”

Powell didn’t say what the central bank might do to face this problem other than talk about speeding up the taper.

That’s it. That’s all Powell said. And that isn’t even a commitment. And even if they follow through, it amounts to nothing, because what they were doing in the first place amounted to nothing. Because in the face of this larger inflation threat, the Fed continues to pour gasoline on the fire. Just because they’re pouring a little less gasoline doesn’t change the nature of what they’re doing. You’re not going to put out a fire by pouring less gasoline on it. You actually have to start putting it out and they’re not even close to doing that.”