After a volatile stock market a couple of months ago, there was the possibility of a fourth edition of quantitative easing, which many people had discussed, including the talking heads on CNBC and Federal Reserve officials. However, since the Dow Jones surpassed the 18,000 mark and oil prices continuing their downfall, those speculations have been essentially dismissed.
For one contrarian investor, the United States central bank will certainly return to QE.
Peter Schiff, CEO of Euro Pacific Capital, wrote in an op-ed piece entitled “Could an Energy Bust Trigger QE4?” in which he discussed that there are a greater number of bubbles existing in today’s bond, real estate and stock markets, primarily because of the Fed’s “easiest monetary policy in history.”
“The Fed lacks the firepower to fight a new recession that a bursting of any of these bubbles could create,” wrote Schiff.
Schiff further opined that the Fed currently does not have the ability to slash rates because they’re already at zero – the European Central Bank (ECB) and the Swiss National Bank (SNB) have introduced negative interest rates in order to spur economic growth and lending among financial institutions.
The only measure the Fed has left in its arsenal is to pretty much resort to another round of QE.
“Despite the widely held belief that 2015 will be the year in which a patient Fed finally begins to normalize rate policy, I believe the Fed has no possibility of withdrawing the stimulus to which it has addicted us,” added Schiff. “More QE may minimize the damage in the short-term, but I believe it will keep us trapped in our current cocoon of endless stimulus, where we will slowly suffocate to death.”
As we have reported, most economists say the Fed will begin hiking rates in 2015, but there are a lot of central bankers and financial experts that have argued against this move. Two of the biggest reasons that so many are opposed to raising rates is because of the paucity of (official) inflation and an unstable labor market.
Earlier this month, Schiff warned that the U.S. could dip back into the recession because the fall in oil prices is signaling such a position.
Leave a Comment