Peter Schiff: "We're In Huge Trouble! Hyperinflation Is Here!"

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01. earlier today the Federal Reserve delivered on Market expectations for another 75 basis point rate hike the FED funds rate now stands at four percent but what the Federal Reserve failed to deliver was on the expected softening in the FED stance on the future trajectory of interest rate hikes what I refer to in the title of a previous podcast as a soft pivot and I believe the Fed was forced into making that pivot because it stood on the precipice of a bond market crash which was in the process of happening and I think the only way the Fed was able to stop that slow motion Crash from playing out and accelerating was by throwing a bone of the markets and indicating through the Wall Street Journal that there was going to be some type of statement that was going to go along with the rate hike that we got today that would indicate okay that maybe there was going to be a pause in the pace a Slowdown in the pace that the Fed was going to take a step back and reflect and assess and maybe acknowledge the progress that had been made without indicating complete Victory but at least acknowledging that victory was at least in sight and that the FED could take a more cautious approach going forward to rate hike something to that effect was expected however nothing even remotely close to that was delivered by Powell now when the markets initially got the news of the 75 basis point hike it was accompanied by an official statement that created some hope that Powell had in fact delivered on what the markets expected the Dow Jones initially rallied about 400 points and the reason for the optimism was that the statement read that the committee was going to take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation and the idea that many people myself included Drew from that was that hey the Fed was now going to take a step back acknowledging this lag rates have come a long way fast and we need to take a pause and to see exactly what we've achieved before moving forward or maybe we're going to raise rates more slowly than we originally thought acknowledging the lags that take place it seemed to me and probably everybody else that that is the direction that Powell was going to go in the press conference but it didn't even wait for the Q a because as Powell was delivering his prepared remarks at the press conference but before he went off script and took any questions he read something that scared the more markets and that entire 400 Point rally in the Dow disappeared and the Dow went negative and the words that he spoke that spooked the market were that price stability is essential and the historic record cautioned strongly against prematurely loosening policy and that we will stay the course until the job is done now the minute those words were spoken the Market's tanked but as Pals started to field some questions Demarcus recovered somewhat not all the way up to the highs but the Dow got to up about 200 until Powell started really showing his hand but he wasn't holding the cards that the market had expected so I want to go over some of the unexpected Bombshells that pal dropped that the markets were not expecting one was Powell reiterated the fed's commitment for positive real interest rates meaning an interest rate that was higher than the inflation rate Powell basically said yeah that's where we're going and right now the FED funds rate is four percent and the inflation rate is higher than eight percent now pal implied that he believed that we would get to positive real interest rates because of a reduction in the inflation rate so it wouldn't require interest rates above eight percent if inflation came back down to four percent well we could have positive real interest rates at five percent but what the markets are likely to be afraid of and if they're not afraid of it now they will be is what if inflation doesn't come down what if it stays High what if maybe it comes down but it only comes down to six percent well that means if Powell wants to have positive real interest rates if inflation is six percent then we need to go to seven percent and that's a much higher rate of interest than the markets are prepared for or could handle people and so I think the fact that pal had to acknowledge that ultimately we have to have a positive real interest rate that is very scary for the markets then Powell was asked a question about what he and the fomc believed was the current underlying inflation rate in the U.S economy meaning not the headline rate that we all read about but beneath the surface what do you think the rate really is because it can't be eight and a half or whatever the CPI is it must be something lower than that and so what do you think it is and Powell's answer was we don't have a number like we've got no idea we're clueless as to what the underlying rate of inflation may be now that is a very scary admission by the FED because if the FED is committed to fighting inflation but it doesn't even know how big the monster that it has to slay is then how does it know how many rate hikes are going to be necessary how does he know how High rates have to be in order for there to be a positive real rate of interest if he doesn't even understand what the underlying rate of inflation is and if he doesn't understand it now why will he understand it at some point in the future the FED has no clue all it's looking at is the same headline numbers as everybody else and based on that the FED is still way behind the inflation curve and has a long way to go and that again should scare anybody who is counting on the FED to ease up on its current trajectory of Titan but then Powell was asked another question about whether or not he believed inflation had become entrenched and I think the interesting part about that answer is that he didn't say no you would have thought that power would have said no it's not entrenched yet we're just going to make sure that it doesn't become entrenched no he never really answered the question with a yes or no answer in fact what Pals said eventually was that the FED has no way of knowing when inflation becomes entrenched that's another scary admission by the FED because if it doesn't know it's just kind of Flying Blind and it has to err on the side of caution to make sure that inflation doesn't become entrenched but again all of this discussion about entrenched inflation assumes that inflation is a psychological phenomenon it's not inflation doesn't become entrenched because of psychology it becomes entrenched because of monetary policy and I think it already is entrenched and the reason is because of the fed the FED has created so much inflation for so long it didn't even start with covet it didn't even really start with QE the Fed was creating inflation even before it upped the ante to quantitative easing and then upped it again in the aftermath of covid the only time I think you talk about psychology G is in the final stages of inflation becoming hyperinflation