Benzinga - by Shanthi Rexaline, Benzinga Editor.
The Federal Reserve, under the chairmanship of Jerome Powell, signaled that it is leaning toward three rate cuts this year, and with the annual rate of the personal consumption expenditure index ticking up in February, economist Peter Schiff warned on Friday that the central bank could be wrong in its thinking.
Inflation Alive And Kicking: While the Fed claims inflation is headed toward its 2% target, gold’s rally past the $2,200 per troy ounce suggests inflation is headed in the other direction, said Schiff in a post on X, formerly Twitter. The market is a far more reliable indicator than the Fed, he said, adding, “If the Fed really was data dependent, the rising gold price would cause it to raise interest rates.”
The economist noted that personal spending surged up 0.8% month-over-month in February, far more than the 0.3% rise in personal income. The 0.3% monthly increase in the personal consumption expenditure understated the impact inflation has on prices, he said.
“Falling real wages forced consumers to borrow more and deplete savings to pay higher prices to buy less stuff,” he added.
Schiff also flagged another data point to substantiate his claims. The CRB commodity index has risen 12% so far this year and could end 2024 with as much as 50% gains as opposed to the flattish performance in 2024, he said.
“Is an explosive more up in commodity prices in 2024 consistent with lower #inflation and a falling CPI?” he asked.
Big Blunder? In a separate post on Thursday, Schiff said the upcoming Fed rate cut may go down as the central banks “biggest policy blunder,” which would vindicate former Fed Chair Arthur Burns, who infamously allowed inflation to run rampant.
On Friday, the economist said, the rise in the price is a “clear signal” that the current monetary policy is too loose and that the planned rate cuts are a mistake.
“The Fed will ignore this warning as it’s more concerned about bailing out the Govt. and the banks than #inflation,” he said.
Schiff’s loose monetary policy comment came against the backdrop of the Fed funds rate sitting at a 22-year high of 5.25%-5.50%.
He also warned of a more serious crisis than the 2008 global financial crisis, which was set off by the housing market boom and led to a surge in subprime loans that mostly went delinquent. Financial institutions that held mortgage-backed securities in their portfolios incurred losses, and this culminated in the collapse of Lehman Brothers and Bear Stearns.
“#Powell’s current optimism on the state of the U.S. economy is even more misguided than was [Ben] Bernanke’s optimism on the economy during the months leading up to the 2008 financial crisis,” Schiff said.
“We are now on the verge of a far more devastating financial and economic outcome.”
In the market, the iShares TIPS Bond ETF (NYSE:TIP), which tracks inflation-protected U.S. Treasury bonds, closed Thursday’s session up 0.04% at $107.41, according to Benzinga Pro data.
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