Schiff zeroes in on Powell’s assertion that the Fed does not consider fiscal policy when making decisions on monetary policy. He states, “Powell actually said the Fed doesn’t consider fiscal policy when making decisions on monetary policy and that he doesn’t change monetary policy based on fiscal policy. That is likely the most reckless admission ever made by a Fed Chairman. It will define Powell’s failed legacy.” Schiff considers this a “reckless admission,” as it implies a disconnect between fiscal and monetary policies at a time when the two should be working in harmony to address economic conditions. The gravity of this statement could weigh heavily on Powell’s tenure, potentially tarnishing his legacy.
He then critiques Powell’s views on inflation, saying, “Powell actually said that he still sees a risk of having too low inflation. He admitted that the current risk is too high inflation, but once he gets the rate down to 2% he is actually worried it could go lower.” Schiff finds this notion laughable, calling it a “great ‘problem’ to have.” Many Americans would certainly appreciate the relief that lower inflation would bring, making Schiff’s sarcastic tone quite poignant.
When it comes to Treasury yields, Schiff paints a bleak picture. “The Treasury yield curve will soon normalize at higher rates across the curve. Short-term yields will move from 5.5% to 6%. Long-term yields will move from 5% to 7% to 8%,” he says. Schiff argues that the U.S. economy, burdened by a colossal debt, can’t afford such a shift. The implication is clear: expect Quantitative Easing (QE) to return sooner rather than later.
Schiff also flags the waning confidence in the Fed’s ability to manage inflation. “It’s clear that bond investors have lost confidence in the Fed ‘s ability to bring inflation back down to 2%,” he notes. His prediction that 30-year Treasury yields will soar is an extension of this lack of confidence, hinting at an environment of accelerating inflation and rising bond yields.
His predictions on commodities are also gloomy, with Schiff stating that gold and oil prices will both rise significantly. According to him, “Gold is now up $30. Soon oil prices will be over $100 and gold will be over $2,000.” His forecast indicates a belief in further market turmoil, with commodities like gold traditionally considered safe havens during economic uncertainty.
Schiff closes with a dire forecast for the U.S. dollar. “The primary use for U.S. dollars has been to buy Treasuries. But since the biggest buyers are now sellers, and the National Debt and federal budget deficits are soaring, demand for dollars should collapse as well.” If this occurs, it would likely put more upward pressure on Treasury yields and possibly ignite a vicious cycle of declining dollar value and rising debt costs.
Finally, in a direct jab at Powell, Schiff extends an invitation to the Economic Club of New York, stating that there is no point asking Powell about the U.S. economy because he’s either “clueless or a liar.” It’s a strong sentiment, but it summarises Schiff’s overarching point: a distrust in the current central banking system and its leadership.
Schiff’s commentary isn’t just a critique of Powell; it’s a harsh indictment of the entire Federal Reserve system. Whether or not one agrees with Schiff, his views raise essential questions about the effectiveness of current economic policies and their long-term implications for the U.S. economy. And in a climate where the economy seems to be on a razor’s edge, questioning the status quo might just be the most prudent course of action.
