Peter Schiff: The Fed that Cried Taper

The Federal Reserve wrapped up its September FOMC meeting Wednesday and once again left its extraordinary loose “emergency” monetary policy in place. Quantitative easing continues unabated. Interest rates remain at zero. But the Fed did signal it may begin to taper quantitative easing “soon.” In his podcast, Peter Schiff broke down the FOMC statement and Fed Chair Jerome Powell’s post-meeting press conference. He said he thinks when it comes to tightening monetary policy, the Fed is bluffing.

This was a highly-anticipated Fed meeting. Peter wondered why, because after all of the speculation leading up to these FOMC meetings, the Fed always says pretty much the same thing.

The economy is great. Everything is going great. The labor market is strong. Inflation is contained. Yet, we’re not raising rates. We’re not tapering our asset purchase program. Everything is great, but we’re not going to remove any of the emergency monetary policy supports that we implemented when everything was terrible. Even though everything is now great, we’re still going to continue with these policies, because even though it’s not great, it’s not perfect.”

But the Fed did indicate it may begin to taper asset purchases “soon.”

If progress continues broadly as expected, the Committee judges that a moderation in the pace of asset purchases may soon be warranted.”

As far as raising interest rates — now referred to as liftoff — more members of the FOMC now think that might happen as early as next year. But Fed Chairman Jerome Powell repeatedly goes out of his way to assure everybody that liftoff is still a long way off and that the central bankers aren’t yet considering a timeline for rate hikes. Powell has repeatedly said the Fed won’t begin raising rates until the taper is complete. That means nobody can put a timeline on liftoff until we have a timeline on tapering.

The FOMC downgraded its economic growth forecast to a 5.9% GDP increase this year compared with its 7% forecast in June.

On the inflation front, the Fed now acknowledges that prices are rising faster than they projected. The new forecast is for core inflation to increase 3.7% this year. That compares with a 3% projection in June.

Even while acknowledging surging prices, Powell continues to blame it completely on supply chain problems.

These bottleneck effects have been larger and longer-lasting than anticipated. While these supply effects are prominent for now, they will abate. And as they do, inflation is expected to drop back toward our longer-run goal.”

As Peter points out, the Fed never once takes any responsibility for surging inflation. In the Fed’s world, none of it is a function of monetary policy. It’s got nothing to do with too much money. It’s just not enough stuff.

Of course, Powell continues to promise that if inflation does become a bigger problem, the Fed has the tools to fight it. Peter said that is a bluff.

If the Fed was actually willing to use the tools, it would have already used them. The fact those tools are still buried in the shed someplace proves that they have no intention of using those tools, even if they can find them.”

Once again, everybody was looking for the Fed to lay out a plan for tapering QE. And once again, the Fed just talked vaguely about slowing the pace of asset purchases. All Powell and Company said was that they may begin a gradual tapering process soon- maybe.

Note all of the conditional words in the Fed statement. Tapering “may soon be warranted.” Of course, that means it may not soon be warranted. And what exactly does “soon” mean? What does “a moderation” in the pace of asset purchases mean?

During the Q&A session, Powell said he thought the taper would be finished by the end of next year. But we’re almost through September and there is no taper. Powell reiterated that they haven’t made the decision to taper and there is no tapering timetable other than it will be “gradual.” Peter said if they were really close to tapering, there would have at least decided on a timetable.

They would say, ‘Hey, this is how we’re going to do it, and we’re just going to implement it at some time, but they would already have decided on some type of framework.’ But according to Powell, they haven’t even had those discussions yet. They’re holding off on those discussions until they’ve already decided to taper. And they’re not even going to make that decision until sometime in the future.”

The earliest projection for the taper to begin is maybe in December.

If the earliest they can actually start the taper is in December – and Powell repeatedly said that the taper is going to be a very gradual process. It’s going to happen very slowly. Well, if it’s going to be finished by the middle of 2022, then you’re going to have to wrap the whole thing up in six months. Well, how is that slow? You’re going from $120 billion a month and you’re going to taper that to zero — in six months? That would not be slow. That would be pretty rapid, especially considering the pace of the last taper. So, to me, this just proves that the whole thing is a show. They’re not thinking about tapering.”

Peter said the reality is that the Fed is continuing to bluff that it has everything under control. It doesn’t.

In this podcast, Peter also talks about how Fed policies disproportionately hurt African Americans, Republicans and the debt ceiling, Evergrande and what gold will do when the markets realize the Fed is crying wolf.