Peter Schiff Issues Dire Warning
Last week’s inflation data was generally seen as good news for the U.S. economy, as the Bureau of Labor Statistics reported that the country’s core consumer price index increased 2.2% year-over-year for the month of January.
That was the highest increase in more than four years and well past the two-percent inflation benchmark set by the Federal Reserve. But Peter Schiff, CEO and chief global strategist for Euro Pacific Capital, says the data is anything but good news; in reality, it’s the Federal Reserve’s “worst possible nightmare.” (Source: “The Fed’s Nightmare Scenario,” Euro Pacific Capital, February 22, 2016.)
“It will expose the error of their eight-year stimulus experiment and the Fed’s impotence in restoring health to an economy that it has turned into a walking zombie addicted to cheap money,” says Schiff. (Source: Ibid.)
Schiff wrote that the U.S. economy may actually be entering a period of stagflation, characterized by very low to no growth and rising prices. Consumers could see their purchasing power decrease.
“Just because inflation picks up does not mean that things are getting better. 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,” he warned. (Source: Ibid.)
Schiff also blames the 25-basis-point increase in the federal funds rate in December as a main factor for the volatility in equity markets. If the Federal Reserve raises rates even more, the U.S. economy could be launched into a recession, Schiff argues.
“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.” (Source: Ibid.)
According to Schiff, when markets figure out that the Federal Reserve is out of options to fight inflation, the U.S. dollar will plummet, consumer prices will increase at an accelerating pace and “the biggest bubble of them all, the one in U.S. Treasuries, may finally be pricked. That is when the Fed’s nightmare scenario finally becomes everyone’s reality.” (Source: Ibid.)