Peter Schiff: Federal Reserve can’t admit U.S. economy is weak

Is the Federal Reserve losing credibility? After this week’s announcement that the federal funds rate would be maintained between 0.25 and 0.50 basis points, and cut its economic forecast by 0.2 percent to 2.2 percent, one contrarian investor thinks so.

Peter Schiff, president and CEO of Euro Pacific Capital, told Benzinga that the Fed is losing credibility as the general public realizes the national economy is week. This, says Schiff, is part of the reason why the likes of Donald Trump and Bernie Sanders are doing so well in the 2016 presidential election.

Ultimately, the Fed can’t concede to the idea that the U.S. economy is looking weak, and this leads to the central bank “looking stupid as a result.”

For the remainder of the year, Schiff predicts the Fed to be increasingly dovish, which will help push down the dollar.

“Most economists are saying that the current pickup in Inflation must mean that the economy is improving,” Schiff said. “To reach this conclusion one must not only ignore the basics of economics but also the very many signs that the economy is currently weakening drastically… The optimistic conclusion is that wages will rise to match price increases. But that is not happening (the last payroll report showed a huge drop in weekly earnings). So what we have is rising prices and flat wages…a terrible mix for consumers.”

Will the Fed raise interest rates two more times as indicated? He thinks that if the Fed were to impose additional rate hikes then it would increase the chances of a recession, which then means political implications.

Rather than actually raising rates, the Fed, according to Schiff, will talk about wanting to boost them, and in the mean time pray to the heavens that the economy strengthens.

“But the more likely scenario is that the Fed does nothing while promising to do something,” Schiff told the financial blog. “But if the economy weakens further, they will have to officially call of future hikes, and perhaps go back to zero. They will of course have to ignore any additional signs of inflation to do so. When the market realizes that, the dollar will plunge, and non-dollar markets and gold will outperform.”

Will a rate hike happen in April? Schiff doesn’t expect one.

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