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That Moment Janet Yellen Sounds Just a Little Bit Like Peter Schiff

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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 last month’s FOMC meeting, current Fed chief Jerome Powell signaled that the central bank’s rate hike cycle is on pause, 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.”

In his podcast after the Fed meeting, Peter said he thinks the central bank will have to start cutting rates in the near future because the Powell Pause isn’t going to be enough to save the markets over the long term.

I think that soon the markets are going to be demanding a lot more from the Fed than just a cessation of rate hikes and a commitment not to shrink the balance sheet. I think what the addicts are going to require is going to be more quantitative easing and a return to zero, and that is exactly what the Federal Reserve is going to provide once it realizes that’s what’s necessary.”

Of course, Yellen doesn’t sound exactly like Peter. She continues to insist the US economy is humming along nicely.

So far, the economic data for the United States is solid and strong. We’ve got as you know about the lowest unemployment rate in about 50 years, continued solid job performance, low inflation.”

So, why in the world would she be floating the possibility of a rate cut?

The excuse is slowing global growth.

The data from China has been recently weak, the European data has also come in weaker than expected.”

Yellen said she would have projected two rate hike in 2019 had she been asked for a prediction in December. And yet now she’s talking rate cuts. This raises the question Peter brought up in his podcast: what’s actually changed in the last six weeks to support a 180-degree shift in monetary policy?

Now here we are just a few months later. Nothing has actually changed with the overall economy. Yes, we had a government shutdown; the government shutdown is over. Not that big a deal. I mean, there has been weak economic data, but there’s been weak economic data that the Fed has been ignoring the entire time … The only thing that’s really changed between the September meeting and today is a bear market in stocks. The bear market that happened in the fourth quarter of last year and the acceleration of the downtrend that accompanied the last rate hike the Fed delivered in December. That’s the only substantive difference between now and then. And that’s the only reason the Federal Reserve has done a complete 180 when it comes to monetary policy.”

The Fed wants to help the stock market and the economy. But the last thing it wants to do is admit the stock market or the economy needs help. So, Yellen is echoing the same excuse as Powell. Peter called it BS.

So, it has to manufacture some kind of BS reason to explain this 180-degree flip in policy. And basically what Powell was saying was it had to do with the uncertainty in the global economy.”

Let’s be honest, the global economy hasn’t radically shifted in the last three or for months.

As far as the US economy goes, things don’t look nearly as good as the pundits keep telling us when you really dig into the numbers.  Momentum in the service sector slowed in January, according to the latest data from the Institute of Supply Management (ISM). And US factory orders declined another 0.6% in November after registering the biggest drop in more than a year in October. We’ve been highlighting problems in the housing and auto sectors. And of course, we have to contend with the massive levels of debt in the economy.

Powell and company also talked about a lack of inflation as a reason to “be patient” with rate hikes. Yellen mentioned the lack of inflationary pressure as well. During his keynote speech at the Vancouver Resource Investment Conference, Peter said this notion of “low inflation” is really absurd.

We’ve just created a massive amount of inflation. Quantitative easing is just a euphemism for inflation. That’s what inflation is — expanding the money supply. Printing up money and buying government bonds is the definition of inflation. The Fed has been inflating like crazy.”

So, Powell, Yellen and their fellow central bankers don’t sound exactly like Peter. But it’s becoming more and more clear that they are about to do exactly what he’s predicted they would do all along.

You need to anticipate what is going to happen. Because I think that what they have already done should be enough to show you where they’re going. The fact that they had to abort the process at two, two-and-a-quarter, that fact that they were forced to do such an about-face. that should tell you … If you thought that they could do it, that should be the first warning bell that says, ‘You know what? Schiff was right all along. Maybe it’s taken longer than we might have thought to play out, but this is the beginning of the end.”

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About The Author

Michael Maharrey is the managing editor of the SchiffGold blog, and the host of the Friday Gold Wrap Podcast and It's Your Dime interview series.
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