The Federal Reserve announced on Wednesday that it will not raise interest rates in September. Although the language suggests that the United States central bank will move ahead with a rate hike in December, Janet Yellen and Co. have been saying the same thing over and over again for the last two years.
But this can only mean one thing: Peter Schiff was right. Again.
Schiff, president and CEO of Euro Pacific Capital, stated in a recent podcast that the Fed Chair is just using a hawkish tone to offer the illusion that the central bank is going ahead with a rate hike. According to Schiff, it has been just talk in order to keep the markets anticipating some sort of action (SEE: Peter Schiff: Gold market overreacted to Yellen speech, Fed is pretending to be hawkish).
Over the summer, when everyone seemed certain that the Fed was going to raise rates in September, Schiff was telling CNBC the Fed is only “bluffing.”
“When it comes to rate hikes, the Fed has no stick. All they can do is speak loudly. The Fed has been bluffing. They’re finished tightening,” Schiff told the business news network.
“Instead, they keep positioning that they’re about to raise rates, but then they keep coming up with one excuse after another. 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.”
Here is also Schiff’s interview with Russia Today last month:
It is apparent that the stock market starts to become shaky when the Fed hints at a rate hike. Although it is inevitable that the Fed raises interest rates because of inflation, it seems the central bank will refrain from doing so because of the fragile economy. The stock market is addicted to the cheap money and stimulus. Once you start to slowly take the training wheels off the stock exchange bicycle then it begins to teeter.
The Fed has only raised rates once since 2006, and that was back in December.
Remember, the Fed said in December that it would raise rates four times in 2016. At the time, the central bank stated that interest rates would be at 1.375 percent by the end of 2016. In 2017, the Fed expected 2.375 percent and in 2018 3.25 percent.
Who knows when the Fed will start to unload its $4.5 trillion balance sheet?
It’s going to be interesting to see how immense the various bubbles will grow in the coming months.
In any event, Peter Schiff was right once again.
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