Peter Schiff: A Rate Hike Charade and Trump’s Phony Dividend

In Saturday’s episode of the Peter Schiff Show, Peter breaks down the latest inflation report and what it means for the Federal Reserve’s rate decision, arguing that a token rate hike would be more theater than substance. He then turns to President Trump’s proposal of a $5,000 “dividend” to Americans funded by tariff revenue, calling out the plan as both economically illiterate and dangerous for America’s already fragile credibility with its creditors.

Peter starts by walking through how the inflation report shaped market expectations for a Fed rate hike. He explains that a softer number would have given the Fed an easy excuse to sit on its hands:

And the odds of a rate hike next week were better than 50-50. They were a little over 60% coming into the report. But if this report had come out better than expected, meaning a lower number, I think the odds of a rate hike might have dropped precipitously because it would have given the Fed an excuse, some cover, not to raise rates by saying, aha, you see, inflation is coming down, we don’t really have to do anything. We just could hold tight.

He then shifts to the credibility problem facing whoever is running the Fed, noting that endless talk about hiking rates without any action is starting to wear thin with markets:

But I think if he doesn’t hike rates, that’s going to be a big problem now. Because I think one of the reasons that the markets expect to hike at this point is that Warsh has been talking about hiking rates for so long and he hasn’t done it. And I’m not the only one now that has pointed this out. I mean, I pointed it out early on, but now other people are saying the same thing that, wait a minute, talk is cheap. You know, why didn’t you hike rates last time? Why didn’t you hike them before? What’s going on here? You know, you just talked. There’s no action. You’re not doing anything to back up this rhetoric.

Even if a hike does come, Peter dismisses it as symbolic rather than meaningful. He argues the Fed is far behind the curve on inflation, and a quarter point move won’t change that reality:

But a quarter point rate hike just so the Fed can show that it’s willing to do it. This is symbolic. It’s not going to accomplish anything when it comes to reducing inflation. It is too little too late. And so I think all this talk about how the bond market is going to react positively to a rate hike is wishful thinking.

Peter criticizes the assumption that a 5% yield on the 10-year Treasury represents some kind of ceiling. He insists that the ultra-low rate era following the 2008 financial crisis was the real anomaly, not the historical norm:

And people look at a 5% yield. Right now, they’re looking at a 10-year and just under 5%. And they think, OK, that’s got to be the top. That’s it, 5%. And they think 5% is high. It’s not high. Throw out everything that’s happened since the 2008 financial crisis. That’s the aberration. That’s fantasy land. We’re going back to the real world. And in the real world, 5% is not high, especially when you got 40 trillion in debt.

Turning to fiscal policy, Peter explains what he considers one of the most reckless proposals to come out of Washington in recent memory: Trump’s promised $5,000 dividend, supposedly funded by tariff revenue. He questions the entire premise that tariffs have generated a windfall for the government:

So probably the worst thing, I mean, and he said so many really bad things, you know, so, but probably the worst thing was this $5,000 dividend that he promised. And the dividend is supposedly coming from all of the money that he has made America in the last two years. He said that we’ve made so much money that the deals have been so profitable that we’re just so rich from tariff money that the U.S. government now has this huge profit. And we can pay dividends to the Americans as if they were shareholders.

Peter warns that this kind of rhetoric is exactly what spooks foreign creditors who are already nervous about America’s fiscal trajectory. He also points out the practical absurdity of trying to enforce spending conditions attached to the dividend:

So this is the worst thing that you could say if you’re trying to instill confidence in your creditors. This is not the way to do it. This is the way to get them to run for the hills.