Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Peter Schiff: This “Everything Is Great” Attitude Can’t Last Forever

  by    0   2

Despite rising interest rates and more hawkish talk from Federal Reserve Chairman Jerome Powell, the stock markets keep pushing upward. Everybody seems to think the Fed has things under control and everything will be just fine. In his podcast, Peter explained why this “everything is great” attitude will have to come to an end.

The markets don’t seem to comprehend how much has changed since the Federal Reserve embarked on its last tightening cycle.

We’re no longer in this world where the Fed can simply pretend that there’s no inflation. Because inflation is so much higher now than it was at any prior point for the beginning of a tightening cycle. And the economy is also in a much more precarious situation than it typically is when the Fed is hiking rates.”

Despite Jerome Powell and others claiming that the economy is strong, this is really an environment where you would typically expect the Fed to cut rates and launch a new QE program to stop the economy from sliding into a recession.

But the Fed has an inflation problem that it can no longer ignore. It can’t pretend inflation is transitory and that it will go away on its own.

They now have to actively engage in doing something about it. And so, that’s one of the reasons that this cycle is going to be very different from the ones that preceded it. And it’s going to end very differently.”

But the markets aren’t bracing for this.

Bonds have gotten clobbered over the last few days. Yields have risen significantly, though they remain low in historical terms. The markets seem sanguine about the carnage in the bond market. Peter said perhaps investors think we are close to the top of the rise in rates because they’ve become so accustomed to a low rate environment. But the only thing that will stop interest rates from rising is a pivot by the Fed. And as long as the markets ignore the situation and continue to rise, there is no reason for the Fed to pivot.

Remember, the only reason Powell is confident that the Fed can raise rates and shrink its balance sheet is because Powell is convinced we have this super-strong economy. And one of the reasons for the economic strength is the stock market. So, as long as the stock market is going up, Powell has no reason to question that narrative that the economy is strong.”

Keep in mind, the Fed doesn’t even have to tighten. Interest rates will rise in anticipation when Powell talks about tightening. This is likely the reason he came out this week and floated the idea of 50 basis point hikes in the future. He wanted to see how the markets would react.

As long as Powell remains on this path, interest rates are going to keep going up — until the stock market rolls over.”

Rising interest rates will have a significant negative impact on the economy. After all, the US economy is built on borrowing and spending. When the cost of borrowing rises, the economy slows down. But it will take a while before the impact of rising rates on the economy becomes obvious. The stock market is really the canary in the coal mine.

If the market tanks, that’s obvious right away. … So, as long as the market ignores rising interest rates, interest rates will keep rising.”

But at some point, rates will rise high enough that the market can no longer ignore it. Peter said he doesn’t know what the level is, but we’re going to find out pretty soon.

The yield curve has inverted, signaling investors think the rate hikes will cause a recession. On Tuesday, the yield on the 5-year Treasury was 2 basis points higher than the yield on the 10-year. Peter said he agrees with the recession expectation. But the markets think the Fed will respond the way it always does. They expect the Fed to cut rates and yields to fall again. They expect more quantitative easing. And they expect everything will be fine. They think the recession will end inflation. But Peter said at some point, the easy money cycles have to come to an end.

There is no way it can go on forever. It’s just that the people who are buying these bonds, the people who are in the market, have no conception of this reality. They somehow believe that it can go on forever. And they expect that when the Fed goes back to QE and goes back to zero, it’s just going to be another cycle just like the ones we’ve had in the past.”

But again, there is a difference this time.

Inflation.

We already have a huge inflation problem that didn’t exist in the prior cycles.

And so, when the US economy tips over into recession, inflation is still going to be well north of the Fed’s 2% target. And so, there’s no justification for the Fed to go back to zero and back to QE when we still have an inflation problem that has not been solved.”

If Powell and Company are serious about price stability, if they really want to rein in inflation, they will have to ignore the coming recession and the bear market in stocks and bonds. And if they don’t rein in inflation, at some point they will kill the dollar.

The question is will they be willing to do it?

In this podcast, Peter also talks about stagflation, how the next round of QE will be different from the last four, the economy’s addiction to cheap money, and more on the inflation problem.

401k IRA Rollover Free Report

Get Peter Schiff’s key gold headlines in your inbox every week – click here – for a free subscription to his exclusive weekly email updates.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

Related Posts

Peter Schiff: Bank Regulations Aren’t the Solution; They Are the Problem

In the aftermath of the failure of Silicon Valley Bank and Signature Bank, everybody is trying to figure out what happened, who’s to blame, and what can be done to prevent it from happening again. One of the most popular “solutions” is more bank regulations. But in his podcast, Peter Schiff explained why regulations are […]

READ MORE →

Peter Schiff: The 2023 Financial Crisis Has Begun!

As we start to sort through the fallout of the failure of Silicon Valley Bank and Signature Bank and the government’s reaction to it, the next question is: what’s next? Government officials and mainstream pundits insist everything is fine now. They say quick government action averted a crisis. But in his podcast, Peter Schiff said […]

READ MORE →

Peter Schiff: All Roads Lead to Hard Landing and Higher Inflation

The markets still seem to believe the Federal Reserve can ratchet price inflation back down to 2% while bringing the economy to a relatively soft landing. In his podcast, Peter Schiff throws cold water on this hopeful narrative. He goes through the economic data that came out last week shows that all roads appear to […]

READ MORE →

Peter Schiff: History Shows It’s Impossible to Put the Inflation Genie Back in the Bottle

The markets basically shrugged off the hotter-than-expected inflation data for January. Most people remain convinced that the Fed can easily get price inflation back to 2% without wrecking the economy. But in his podcast, Peter explains that stuffing that inflation genie back into the bottle is a lot harder than most people seem to think.

READ MORE →

Peter Schiff: The Fed Brought a Knife to an Inflation Gun Fight

Despite the hotter-than-expected CPI report, the mainstream still seems convinced that the Federal Reserve can get inflation under control and bring the economy to a soft landing. But Peter Schiff argues that the central bank can’t win this fight – at least not without crashing the economy. Since the Fed isn’t willing to do that, […]

READ MORE →

Comments are closed.

Call Now