Peter Schiff: The Fed Is Running Out of Minutes

The Federal Reserve released the minutes from its January FOMC meeting on Wednesday (Feb. 16). While there was some talk about taking on inflation, it doesn’t appear the central bank is really serious about an inflation fight. In his podcast, Peter Schiff talked about the most recent inflation data and the Fed’s response. He said the central bank is quickly running out of minutes.

Gold has rallied to 8-month highs, even with some selling after the situation in Ukraine seemed to deescalate. But as Peter noted, geopolitical tension was not the real driver of this gold rally. It’s the inflation freight train.

The underlying trend has nothing to do with that threat. The real threat is inflation. That’s why investors are buying gold. And that’s why they bought the dip on Tuesday, and we rose to new highs on Wednesday, because we got a lot more inflation data.”

Specifically, we got the producer price data for January. They doubled expectations, up a full 1%.

Initially, gold sold off on the news.

Traders still have that pavlovian dog type reflex to respond to any kind of higher than expected inflation data by selling gold. Why are they selling when they should be buying? Because they look at these high inflation numbers as a sign that the Fed is now going to do something about inflation. ‘Oh, the Fed wasn’t worried and now they’re going to do something, so we better sell gold because the Fed’s going to jack up rates.’ The Fed is not going to do anything. I mean, they may do something. But it’s not going to be enough to fight inflation. It’s not going to be enough to hurt gold.”

First, the Fed pretended there wasn’t any inflation. Then the Fed pretended inflation was transitory. Now the central bankers are pretending they’re going to fight it.

They’re not going to fight it. If they could have fought inflation, they would have started the fight a long time ago. They would never have allowed the inflation genie to get this far out of the bottle if they had a way of keeping it inside. The reason they didn’t fight inflation is because they can’t. Because fighting inflation would collapse the bubble economy. Well, if they couldn’t fight inflation when it was smaller, they sure as hell can’t fight it now when it’s much bigger.”

Peter said investors should be buying gold with both hands.

And they will when they actually understand the box that the Fed has placed us in.”

The Federal Reserve needs to pivot to a restrictive monetary policy. It needs to raise interest rates above the rate of inflation. But that’s not what the Fed is even talking about. It’s simply proposing a moderately less accommodative policy. But it’s still going to be accommodative. St. Louis Fed President James Bullard admitted as much.

With the release of the minutes from its January FOMC meeting, everybody is parsing through it trying to figure out of the central bank will hike rates by 25 or 50 basis points in March. Peter said it’s immaterial.

It doesn’t mean anything because even a 50 basis point hike is not nearly enough to do the job. The Fed needs to hike rates much more than 50 basis points. They should do it right now. They shouldn’t wait until March. The problem is they can’t and that’s why they won’t.”

The markets widely viewed the minutes as less hawkish than expected. One analyst told CNBC the minutes were “dovish relative to expectations.” Another called them “anti-climactic.”

Peter said the Fed is pretending that its policy is going to fight inflation.

And they’re hoping that it does, or that they can fool the markets into thinking that inflation is going to come down and will create some self-fulfilling prophecy that the Fed could fight inflation by talking about tightening so that they don’t even actually have to tighten. But the problem is they’re not even talking about tightening enough to really do anything about inflation, and the markets still don’t even understand that.”

Peter said it should be obvious that nobody can actually afford interest rates high enough to fight inflation. Last year, Jerome Powell admitted that the federal government’s fiscal path was “unsustainable.” But he said it was OK at the time because interest rates were low.

Since he knows that higher interest rates would be unsustainable for the federal government, he’s not willing to deliver those higher rates. But the problem is by keeping rates low, an unsustainable problem gets even worse.”

It’s not unlike what happened in the mortgage market in the runup to the 2008 financial crisis. Alan Greenspan pushed rates up a little at a time and allowed the housing bubble to get even bigger. Eventually, borrowers couldn’t pay the higher rates and we have the crash.

Well, when interest rates go up this time, the US government won’t be able to pay, and we’ll have a much bigger financial crisis. Because when we had the 2008 financial crisis, the government was able to bail out all the lenders. But when this crisis is about the government, and it’s the government that’s insolvent, there’s no one that can bail out the government. The government bailed everybody out by printing money. They won’t be able to bail anybody out by printing money next time because printing money is the problem. The dollar is crashing. They’ll be printing money that nobody wants. They’ll be printing money that won’t buy anything.”

Teddy Roosevelt said, “Speak softly and carry a big stick.” The Fed doesn’t have a stick at all. So, it just has to scream as loudly as it can and hope nobody notices that it doesn’t have a stick.

This is not a new problem. The inflation we’re seeing today is the result of decades of kicking the can down the road. And there’s no quick fix. This is the norm. When you print trillions of dollars out of thin air, you get high inflation.

This period of low inflation is over. And it’s not coming back.”

We were lulled into complacency because we didn’t immediately see the consequence of this reckless monetary policy.

Well, now the consequences are here, and there’s a lot more to it than we’ve already experienced. And in the meantime, we continue to make a problem we don’t understand worse. And as a result, nothing that the Fed is doing, nothing that the government is doing is going to reduce inflation. Everything that they’re doing is going to make it worse.”