After the Federal Reserve increased interest rates on Wednesday, Chair Janet Yellen announced that the central bank projects rates will rise to 1.375 percent by the end of 2016, 2.375 percent by the end of 2017 and then 3.25 percent in 2018. It also noted that it doesn’t know when it can offload its $4.5 trillion balance sheet.
Are these estimates feasible? Not exactly, says Peter Schiff, CEO of Euro Pacific Capital, who thinks the next move by the Fed will be a return to quantitative easing once the next recession hits the United States.
Speaking in an interview with Newsmax, Schiff explained that investors shouldn’t buy into the hype created by the Fed, which is essentially the rate hike is a sign the economy is improving. Schiff says it’s the exact opposite.
The bestselling author of “Crash Proof” averred that the next recession is about to start, there’s a good chance that it’s already here or it will start early in 2017.
“The only reason the Fed is raising rates is to try to show that they have confidence in the economy, but the reality is they have no confidence in the economy and they’re trying to cover up those fears with this symbolic rate hike,” said Schiff. “But they’re going to have to figure out how to reverse course unfortunately. They’re going to be doing QE4 next year, they’re not going to be raising rates again.”
Although the Fed is optimistic about the U.S. economy and that its rates will go up over the next few years, Schiff doesn’t see what they’re talking about. He noted that this isn’t the start of the “hiking cycle” but rather the end of it. The reason for this is because once a recovery happens then the central bank raises rates early on.
“The economy still has a lot of upward momentum, but the Fed has waited so long, this recovery is almost over,” he said. “I mean we’re still practically at 0 and that shows you how little confidence the Fed has in the economy that after supposedly seven years of recovery, that’s all we get. And again, we’re going to go back to 0 very quickly.”
Yellen may in fact initiate a subzero rate policy, which is something she has said is on the table in the event of a serious financial crisis (SEE: Yikes! Janet Yellen would consider negative interest rates if economy collapses). So the future would be akin to Europe: negative interest rates and another round of QE.
“Cheap money isn’t coming to an end, we’re about to be showered with it. QE4 could be bigger than QE1, 2 and 3 combined. And it’s not because this helps. It doesn’t help. We would have been better off had the Fed never done any of this,” he stated.
“We don’t have a real recovery. All we have is a bubble and that bubble prevented a legitimate recovery and so now the U.S. economy is in much worse shape economically than it was just prior to the 2008 financial crisis and so now the next financial crisis, which the Fed has created, is going to be much worse than the last one.”
Schiff could be right as the Fed-induced boom phase has to come to an end sometime. Financial institutions and analysts forecast a 2016 recession (SEE: Economists say odds of a U.S. recession likely in 2016), which means the Fed may have to reverse its recent policies.
–AM
This is the same Schiff that said the Fed would not raise interest rates.
they actually not really raised it, it was 0 to 0.25 its now 0 to 0.50, the minimum is still at 0!!!
And the same Schiff that advised we buy gold at $250, and that was laughed at for predicting the housing collapse.