Economists and central bankers are celebrating after it was reported by the Bureau of Labor Statistics (BLS) that inflation rose 2.2 percent year-over-year in the month of January. This turned out to be the biggest jump since 2012, and exceeded the Federal Reserve’s two percent target.
Not everything thinks this is all sunshine and lollipops, though.
Writing in an op-ed piece entitled “The Fed’s Nightmare Scenario,” Peter Schiff, president and CEO of Euro Pacific Capital, believes the data aren’t really showcasing positive news. In fact, says Schiff, this is the Fed’s “worst possible nightmare.”
The data expose the failure of the Fed’s eight-year stimulus experiment and highlight the fact that the Fed has metastasized the U.S. economy into “a walking zombie addicted to cheap money.”
According to Schiff, the U.S. economy may be embarking upon stagflation, which is low growth and rising prices.
“Just because inflation picks up does not mean that things are getting better,” he wrote. “It actually means they are about to get a whole lot worse. Stagflation is in fact THE nightmare scenario for the Fed. If inflation catches fire now, the Fed will be completely incapable of controlling it.”
Schiff added that the extreme volatility in the equity market is a result of the Fed’s recent 25-basis increase in interest rates.
“With growth already close to zero, a monetary shock of one or two percent rates could send us into a recession that could end up putting Donald Trump into the White House,” Schiff said. “The Fed would prefer that fantasy never become reality.”
In the end, Schiff avers, the Fed is out of options to combat any number of things, including a plummeting dollar, rising inflation and consumer prices.
“The biggest bubble of them all, the one in U.S. Treasuries, may finally be pricked,” he warned. “That is when the Fed’s nightmare scenario finally becomes everyone’s reality.”
Leave a Comment