Monday, January 18, 2016

Fed's Next Move Will Be More Easing Once Recession Hits

Peter Schiff, CEO of Euro Pacific Capital, warns investors not to believe the hype that the Federal Reserve’s interest-rate hike reflects confidence in a strengthening economy.

No, just the opposite, he told Newsmax TV.

“The next recession is about to begin and there's a good chance that it's already here or it will begin early in 2017,” he told Newsmax TV’s “The Hard Line.”

The Fed on Wednesday lifted its key interest rate by a quarter point to a range of 0.25 to 0.5 percent, up from near zero for the first time since December 2008.

“The only reason the Fed is raising rates is to try to show that they have confidence in the economy, but the reality is they have no confidence in the economy and they're trying to cover up those fears with this symbolic rate hike. But they're going to have to figure out how to reverse course unfortunately. They're going to be doing QE4 next year, they're not going to be raising rates again,” he said.

To be sure, Fed policymakers have slightly lowered their projections for short-term interest rates over the next three years, a sign that policymakers may move slowly after their first rate increase in seven years, the AP reported.

More Fed policymakers now expect the short-term rate will be 1.38 percent or below at the end of 2016 than in previous projections in September. And they forecast the rate will be 2.38 percent at the end of 2017 and 3.25 percent at the end of 2018, both a quarter-point lower than in September, according to projections released Wednesday.

Still, the Fed's forecasts for the U.S. economy and interest rates have proven too optimistic for most of the recovery from the Great Recession. A year ago, for example, their projection for short-term rates at the end of 2016 was nearly double what it is now.

But Schiff doesn’t see it that way at all.

“I don't think this is the beginning of the hiking cycle. This is the end of it. See, normally when the Federal Reserve begins to raise interest rates, they do it early in the recovery. The economy still has a lot of upward momentum, but the Fed has waited so long, this recovery is almost over,” he said.

“I mean we're still practically at 0 and that shows you how little confidence the Fed has in the economy that after supposedly seven years of recovery, that's all we get. And again, we're going to go back to 0 very quickly,” he said.

“In fact, they may bring rates negative. That's what might be in our future. Not only negative real rates, which we've already had because the rate of inflation is higher than the rate of interest, but we might actually have negative rates the way they have them now in parts of Europe and again, they're going to do another round of quantitative easing. It's unfortunate,” he explained.

“Cheap money isn't coming to an end, we're about to be showered with it. QE4 could be bigger than QE1, 2 and 3 combined. And it's not because this helps. It doesn't help. We would have been better off had the Fed never done any of this," he explained.

"We don't have a real recovery. All we have is a bubble and that bubble prevented a legitimate recovery and so now the U.S. economy is in much worse shape economically than it was just prior to the 2008 financial crisis and so now the next financial crisis, which the Fed has created, is going to be much worse than the last one.”


- Source, NewsMax



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