Tuesday, May 26, 2015

Has Peter Schiff Changed His View on a Fed Interest Rate Hike?

Peter Schiff may have changed his view slightly on a possible Fed rate hike. His lates comment on rates is a bit to nuanced to know four sure. But, whereas, recently he has written that there will be no rate hike and that QE4 is coming, he writes in an essay today:
 I do not believe the Fed has any actual intention of delivering the rate increases that it may expect will damage our already weak economy.
I have no problem with Peter's take here, if by this he means that rate hikes will occur that do not reverse the current up phase of the business cycle. Indeed, as I have stated here in EPJ a number of times. I believe the Fed will raise rates on a "one and watch" basis.

That is, there will not be a series of regularly stepped increases such as the increases made under Alan Greenspan by the Fed:

However, I do not believe that it will be a "one and done" rate hike. The Fed will raise the rate once and watch the markets and economy before hiking again, but they will hike again. Indeed, as I discuss in the EPJ Daily Alert, I expect such a dramatic acceleration in price inflation that the Fed will be caught in a tiger by the tail situation in battling the inflation and that over a two to three year period short-term rates could easily climb to 10% or more---with the Fed still not bringing the inflation under control!

In other words, my view on what the Fed will do with interest rates over the next 2 to 3 years is significantly different than those who think no rate hike is coming or that it will only be a very minuscule rate hike.

The first rate hike will be in the range of 25 basis points, but it will only be one of many over the next 2 to 3 years. As I discuss in the ALERT, this will have significant implications for investments and business operations.

As for Peter's exact view, he is booked for The Robert Wenzel Show in a couple of weeks. so I will get his specific take then. (The show will air at EPJ on June 12).



  1. Wouldn't a 10% hike bankrupt the federal government? Why wouldn't politicians prefer high inflation to bankruptcy?

  2. The Fed can temporarily salvage the dollar if it wants to sacrifice the "wealth effect" it has been pushing. Rate hikes will do wonders for stocks and housing, don't you think? Imagine what skyrocketing foreclosures would do to state budgets, not to mention bank balance sheets.

    Even a normal rate of roughly 6% on the 10-year will drive debt service north of $1 trillion. Either Congress gets its act together (ha!) on reining in spending or we're looking at $1 trillion deficits again even by Uncle Sam's laughable accounting.

    The government either defaults on its promises, or they try to inflate their way out of it. I don't see any middle road here. Either way, the country and the rest of the world is in for some very interesting days ahead.

  3. Gee, the GDP data is so good they feel the need to double up on the "seasonal adjustments" so as to show some kind of growth to justify a rate hike. What a freak show.