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January 28, 2021Peter's Podcast

Peter Schiff: Jerome Powell Is Completely Clueless

The Federal Reserve played the same tune during its first Open Market Committee meeting of the year, but the partygoers on Wall Street didn’t dance. In his podcast, Peter Schiff talked about Jerome Powell’s post-meeting press conference and said the Fed chair is “completely clueless” to the true nature of the problems facing the economy. And so is the mainstream.

The Fed kept interest rates at zero and said it would maintain bond purchases at the current level of $120 billion per month — $80 billion of Treasury bonds and $40 billion of mortgage-backed securities. The FOMC statement repeated its previous messaging, committing to keep this extraordinary monetary policy in place until the economy makes “substantial further progress” toward the central bank’s employment and inflation goals.

During his post-meeting press conference, Jerome Powell said it would take “some time” before the central bank would begin tapering quantitative easing.

In a nutshell, the Fed committed to the status quo and to continuing its “accommodative” monetary policy into the future. But the status quo apparently isn’t good enough for the markets anymore. The addict wants more of the drug.

The Dow Jones plunged 633 points. It was the biggest drop since October. The Nasdaq fell 2.61%. And the S&P 500 dropped over two-and-a-half percent.

Stocks tanked despite what Peter called “the most dovish” Powell press conference he’s ever heard.

It should have been a positive for the market, given how the market responds to easy monetary policy. But the fact that despite this incredible dovish Powell the market not only didn’t recover what it had lost [earlier in the day], but it built on those losses, should be very problematic for the bulls.”

The messaging from the FOMC seemed to indicate the central bankers are more concerned about economic growth than the last time they met and that they are less concerned about inflation. They are talking about inflation in the long-run, but downplaying any short-term risk of inflationary pressure. Peter called this “ridiculous.”

The mere fact that the Federal Reserve is downplaying the risks of inflation lets you know how much greater those risks are now looming, because if the Fed isn’t worried about inflation that means it’s going to get a lot worse, especially since what they are worried about is the economy and they think that the way to stimulate the economy is by creating inflation.”

Powell seems to be basing his optimistic view of inflation on the fact that we haven’t had any significant increase in CPI for so long. But he’s ignoring the fact that the CPI doesn’t really capture the true extent of inflation and a lot of it has been exported to the rest of the world thanks to the dollar’s reserve currency status and America’s ability to run massive trade deficits. He’s also ignoring the fact that the current stimulus campaign is putting a lot more money into the hands of consumers, not just Wall Street investors.

It’s not just about goosing the stock markets anymore. It’s not just about funneling money to Wall Street through the banks. Money is being sent, checks are being put in the mail and sent directly to Americans who are non-productive. They’re not making goods. They’re not providing services. They’re just cashing government checks and the money is coming from the Federal Reserve. So, to ignore that significant change in the character of the policy and to just rest your hat on the fact that ‘well, we didn’t have any problems in the past so we’re not going to have any in the future,’ without recognizing how much different things look now from the past and how much higher the risks have elevated — he’s just oblivious to those inflation risks.”

When asked about the possible connection between the Fed’s monetary policy and crazy stock market valuations, he downplayed the relationship between low interest rates and high asset prices. Peter called this asinine.

How could you deny such an obvious connection? I mean, after all, the Fed’s policy of QE, initial policy, if you go back to Ben Bernanke, why did the Fed slash interest rates and buy bonds? They did it to push up asset prices. That was the goal of the policy. So, if low interest rates don’t push up asset prices, then what was the point of lowering them? … Of course there’s a connection. That’s why the Fed lowered interest rates, to create a phony wealth effect.”

But Powell let the cat out of the bag and tacitly admitted he knows there is a connection between the central bank’s policy and low interest rates when he rhetorically asked, what should we do, raise interest rates?

Basically, that’s what he’s saying. He’s throwing that back out at the reporters, ‘Why are you even asking me this question, because what do you expect me to do about it? It’s not like I can raise rates.’ Which is kind of an admission that the Fed knows there is a big connection between interest rates and asset prices, which is why it can’t raise interest rates because it knows that if it does raise interest rates, asset prices are going to crash. So, what they have to do is pretend there is no connection at all. But because they know there is a connection, they can’t raise rates.”

There’s another reason they can’t raise rates: everybody is levered to the hilt. The economy is built on a giant pile of debt – from the federal government, to corporations, to consumers.

Because everybody has so much debt, nobody can afford higher interest rates.”

Despite Powell’s extremely dovish talk and the Fed’s commitment to maintaining “accommodative” policy, the dollar was stronger. Meanwhile, gold ended the day down about $6.

If anybody understood the significance of this conference, and how completely clueless Powell is to the true nature of these problems and the monetary crisis that we’re heading towards, gold would have been at a record high today. Gold should be up hundreds of dollars an ounce today. It should already be higher. But if it wasn’t, based on this, people should have been buying gold and silver with both hands.”


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