The Federal Reserve announced at the end of its two-day monetary policy meeting on Wednesday that it will leave key interest rates unchanged. As expected by markets, the Federal Open Market Committee (FOMC) left rates unchanged in a range between 0.25 and 0.5 percent. But Fed Chair Janet Yellen has been hinting that a rate hike could take place later this year. In other words, the United States central bank is taking a wait and see approach.
It’s this language that has Peter Schiff, president and CEO of Euro Pacific Capital, thinking that the Fed will start easing monetary policy even further in the coming months.
Speaking in an interview with CNBC after the Fed released a statement, Schiff argued that, unlike Teddy Roosevelt’s famous comment about speaking softly and carrying a big stick, “the Fed has no stick.” Instead, says Schiff, the only thing the Fed can do is “speak loudly.”
“The Fed has been bluffing. They’re finished tightening,” Schiff said.
He posited that the Fed will soon start to institute another edition of quantitative easing, but is masking these intentions by noting that it may raise rates soon. He added that raising rates will hurt the U.S. economy.
“Instead, they keep positioning that they’re about to raise rates, but then they keep coming up with one excuse after another,” Schiff stated.
“I think what they’re going to do to ease monetary policy going forward is to adjust their rhetoric. They’ll start talking about not raising rates soon, then they may admit that they no longer have a bias to tightening, then they can say they have a bias to easing.”
Schiff further averred that the Fed is not the culprit of this year’s really. Instead, according to Schiff, it was the market’s ability to absorb the Brexit aftermath that allowed stocks to soar. He explained that Brexit kicked out the Fed from implementing even more stimulus.
When asked about the Fed raising rates once last year, Schiff explained that he was closer to his prediction than the market experts, which regularly prognosticated six to eight rate hikes throughout 2015.
“I knew that the Fed couldn’t raise rates! The fact that they did one trivial quarter-point rate hike, and then back-tracked and took [other hikes] off the table proves that I was right,” said Schiff. “They raised interest rates, the markets got crushed and the only reason the markets rallied back was because they stopped raising rates!”
There is a 20 percent chance of a rate hike in September, according to the CME Group FedWatch tool.
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