During last week's Federal Reserve Open Market Committee meeting, the central bank announced it would leave interest rates unchanged.
The announcement didn't come as a surprise. With inflation weaker than expected in recent months, analysts widely expected the Fed to hold pat on rates. But Yellen and company did say they plan to begin shrinking the central bank's balance sheet soon, a sign they want to remain on the path to "normalization."
This raises a question: why now? Objectively speaking, the economy isn't currently any stronger than it was a couple of years ago. It might even be weaker. Peter Schiff addressed this during a recent interview on RT's Boom Bust. He said he thinks it's because now the Fed has a fall-guy in Donald Trump.
Ever since Trump was elected, the Fed has hiked rates three times. Before the election, during the entire eight years of Obama, they raised rates just once. So, they have certainly picked up the pace, even though the economy is no stronger, and in many cases is weaker now than it was in the years before Trump took office. So, I think the Fed has been embolden to raise rates because they have a fall-guy in Donald Trump. I think Donald Trump has made the mistake of claiming ownership of this economy, claiming ownership of the stock market, taking credit for the stock market's gains and the supposed strength of the economy, and so he set himself up perfectly, and the Fed can take advantage of that, because when everything comes tumbling down, they can blame it all on Trump."
Of course, what the Fed actually ends up doing remains to be seen. Fed officials say they will start unwinding the balance sheet, "relatively soon." But as Peter said, what the Fed means by "soon" is anybody's guess.
By relatively soon, they may mean never, because, you know, shrinking the balance sheet is a lot harder than expanding it. Quantitative easing was the fun part. Quantitative tightening is not only the hard part, it's really the impossible part."
Peter said Yellen may well start unwinding the balance sheet, but the Fed will never complete the process. Before that happens, we'll once again see 0% interest rates and QE4.
Because we are long overdue for a recession. Peter pointed that the signs are pointing in that direction already. While the current expansion is long in the tooth, it has been extremely weak by historical standards. Even at that, it has required an enormous amount of artificial stimulus. Growth is slowing. The consumer is loaded with debt. Retail sales are plunging.
So what will the Fed do when the bottom falls out completely? The same thing it did the last time. It's going to lower interest rates and do quantitative easing.
Despite all of the negatives economic signs, Peter points out, Janet Yellen continues to spin everything to the positive. Peter said this is typical.
They never acknowledge the problems. Even if they see them, they're not going to admit it. I mean, they were very positive going right into the financial crisis of 2008. It's like you're a weather man and there's a category five hurricane right of the coast, and your forecast is sunshine and it's great weather. That's the Federal Reserve."
Peter said it's important to remember that the Fed created the problems it's claiming to solve in the first place. That doesn't bode well for the future.
The future, unfortunately, is quite bleak. Especially as a result of the policies the Fed has pursued. Because everything the Federal Reserve has done in the aftermath of the 2008 financial crisis has made the underlying economic problems that caused that crisis worse. And now the Fed has set us up for an even bigger disaster."