Right after the last Federal Reserve Open Market Committee meeting, Peter Schiff said the “Powell Pause” won’t be enough to save the stock market and head off a recession. He said ultimately, the central bank would have to cut interest rates and launch another round of quantitative easing.
Well, it seems the mainstream is starting to catch up with Peter’s thinking. Yesterday, Bloomberg ran an article asserting that “instead of pausing, the central bank may need to start cutting interest rates to avoid a recession.”
Once upon a time, quantitative easing was considered an “extreme measure.” But it may become more commonplace. According to a Reuters report, central bankers in the US are discussing whether they should turn to that “tool” more often.
In other words, the Fed may make the “extreme” the norm.
All of a sudden, former Federal Reserve chair Janet Yellen sounds a little bit like Peter Schiff.
During an interview on CNBC, Yellen conceded that the next Fed move could be an interest rate cut.
Of course, it’s possible. If global growth really weakens and that spills over to the United States where financial conditions tighten more and we do see a weakening in the US economy, it’s certainly possible that the next move is a cut.”
After Jerome Powell indicated that the Federal Reserve tightening cycle was on pause during last week’s FOMC meeting, Peter Schiff said, “The monetary drug pushers at the Federal Reserve gave the addicts on Wall Street exactly the fix that they had been craving.”
Peter often compares the markets to drug addicts. They are addicted to the easy money the central bank provides. Reuters used that same imagery to describe America’s business community in the wake of the “loose money era,” saying it left a “trail of US corporate debt junkies.
During his keynote speech at the Vancouver Resource Investment Conference, Peter Schiff said we are at the beginning of the end.
The Fed appears to have paused interest rate hikes in order to save the stock market. The markets have reacted positively and a lot of analysts seem to think we’re out of the wood. But Peter traces the moves of the Federal Reserve all the way back to the first rate hike of December 2015 and shows how the central bank has put us on a path toward a financial crisis that will be bigger than 2008. Peter insists he’s been right about what would happen all along, it’s just taken us a little longer to get here than he expected.
The Federal Reserve Open Market Committee met yesterday and held interest rates steady in the 2.25-2.50% range. This wasn’t really a surprise. More significantly, Fed Chair Jerome Powell kept up the dovish rhetoric, saying, “The case for rate increases has diminished. I would need to see a reason for further rate hikes that would have to include higher inflation.”
We’ve called this the Powell Put, and it appears it’s still solidly in play. But in his most recent podcast, Peter Schiff called it the “Powell Pause” and said it wasn’t going to be enough.
Stocks got a boost on Friday and gold rose 1.8% on further signs that the Federal Reserve is capitulating.
An article in the Wall Street Journal basically confirmed the Fed is now thinking about winding down its quantitative tightening program. As a CNBC headline put it, “The Fed may be moving closer to ending its rally-killing balance sheet reduction.” As Peter put it in a recent podcast, “The Federal Reserve is having to prematurely abort quantitative tightening, which is exactly what I said they were going to do before they shrunk the balance sheet by the first dollar.”
Not too long ago, it was on autopilot, they were just going to leave it alone and it was going to keep on going and then the market started to cave and then they change that to, well, we’re data dependent and now the market starts to go down a little bit more and all of a sudden we’re almost done. “
Stock markets appear to have stabilized after a “December to remember.” But in his most recent podcast, Peter Schiff said we’re really just in the eye of a financial hurricane.
The selloff began after the September Fed rate hike. At the time, Peter called it the hike that broke the camel’s back. The market plunged in October and Wall Street ended up having its worst December since 1931. But over the last few weeks, things have calmed as we entered the eye of the storm.
What happens when central banks push interest rates to zero – in some cases below zero – and hold them there for nearly a decade?
You get debt.
Lots and lots of debt.
Record levels of debt, in fact.