Peter Schiff: The Fed is Ignoring the Inflation Crisis

In his latest podcast, Peter tackles the Fed’s recent decision to hold rates steady, criticizing Chair Jerome Powell for downplaying inflation risks and questioning the central bank’s logic behind future rate cuts. He also addresses the patterns of foreign central banks ditching U.S. Treasuries for gold, rising national debt burdens, and the dangerous misconception that all employment is equally productive.

 

Peter first analyzes the Fed’s decision to significantly slow down balance sheet reduction. He sees a clear pivot back toward quantitative easing:

Of course, the Fed should continue to shrink the balance sheet. The balance sheet is much too large. The fact that the Fed is dramatically slowing the rate of reduction, I think it’s just another step in the direction of a return to all out quantitative easing. I think that’s coming. The reason I think that this is a very dovish move by the Fed has to do with the way in which Powell really dismissed the pickup in inflation as if it’s really no big deal or even denying that it exists and showing that the Fed is still focused on these rate cuts, when in reality they should be hiking rates. 

Peter elaborates on the critical difference between rising prices and inflation, cautioning against a narrow focus on CPI statistics. He stresses that true inflation comes from monetary expansion and increasing credit availability, both of which continue to ramp up:

Prices going up are a result of inflation. You can’t just focus on prices. Again, it’s like looking in the rearview mirror. You’re going to get into an accident. It’s the money supply expanding, which is continuing, and credit. Inflation is not just the expansion of the money supply; it’s an expansion of credit because credit can be used as money. You can buy stuff with credit even if you don’t have any money. And so the more credit there is in the economy, the more upward pressure there is on prices.

According to Peter, Powell and the Fed are setting themselves up for future failure by insisting on waiting for inflation to prove permanent before acting. He points out that such a delayed reaction will only exacerbate the inflation issue, noting how the Fed is potentially using tariffs as a scapegoat to deflect blame from its own failed monetary strategies:

I mean, I know this was going to happen: anything that happens, he’s going to say, ‘Well, I guess it was the tariffs.’ That’s how the Fed is going to deflect the blame from its own monetary policies and put them onto the tariffs. That’s another reason why Trump shouldn’t have done it, because it gives the Fed an excuse and it lets them off the hook because it’s very easy to blame the inflation on tariffs. But if Powell does what he says, just really waits until he can figure out whether the price increases are transitory or whether it’s more permanent, by the time he figures that out, it’s much too late to do anything about it.

Peter concludes by underscoring Powell’s troubling disregard for the distinction between productive jobs in the private sector versus unproductive government employment. He makes clear that treating these different forms of employment equally reveals a fundamental lack of economic insight and only worsens inflationary pressures:

Somebody asked Powell, ‘Are you worried about this composition that too many of the jobs that we’ve created are these government jobs?’ Powell basically said no. Powell said that the Fed doesn’t distinguish what kind of job it is: jobs are jobs. He says that from our standpoint, employment is employment; it doesn’t matter where the job is coming from and it doesn’t matter what the person is doing. As far as the Fed is concerned, all jobs are created equal, which is a bunch of nonsense. Does he really believe that? Is he really that ignorant about basic economics? Of course, all jobs are not equal, because a productive private sector job is worth a lot more to the economy than a non-productive government job.

For more of Peter’s insight, check out his recent interview with the Institute of Economic Affairs.