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Everybody knew that the Federal Reserve wasn’t going to hike rates at the September FOMC meeting. And yet everybody waited with bated breath to hear what Jerome Powell would say. In his podcast, Peter Schiff explained why people hang on Powell’s every word. It’s not because they think he knows what inflation or interest rates will be next year. They realize that Powell is just guessing. So, why do people care what he thinks?

Meanwhile, inflation is strong — not the economy.

As expected, the Federal Reserve held interest rates steady at the September FOMC meeting and indicated that it only planned to hike one more time. Peter said that in essence, the FOMC is saying that it’s really finished now.

Even if you raise rates by another 25 basis points, after going from zero to 525, what difference is one more 25 basis point hike going to do? And if they haven’t done the job now, if five-and-a-quarter isn’t enough to bring inflation back down to 2%, which it’s not, if that’s not enough, then five-and-a-half isn’t going to do the trick.”

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It’s not as if people will drastically change their behavior if the Fed funds rate is 5.5% instead of 5.25%.

It’s too small a difference to be meaningful. So, this really signifies the end of the hiking cycle, at least to the extent that the markets are anticipating.”

The massaging coming from the Fed was essentially unchanged. Federal Reserve Chairman Jerome Powell continued to talk tough and emphasize that the central bank is committed to doing whatever it takes to get price inflation back to 2%. Many in the mainstream interpreted the Fed’s messaging as very hawkish. As a Reuters article put it, the Fed “stiffened its hawkish stance.”

While the FOMC didn’t raise rates, it did indicate it will continue to shrink its balance sheet. Peter said the balance sheet reduction raises a problem that’s not being addressed.

The national debt recently drove over $33 trillion. It took the Biden administration just three months to add another $1 trillion to the debt. And yet the economy is supposedly strong.

This ‘unexpectedly strong’ economy is hemorrhaging red ink!”

Peter said this reveals the size of the crisis, and yet Powell never addressed the debt or government spending during his press conference.

Powell is doing a press conference on inflation, and the main source of inflation is government debt that the Fed monetizes. Yet the topic of the out-of-control debt and all of the monetization doesn’t even come up. How do you even have a press conference to discuss inflation, and you ignore the elephant in the room?”

Peter said people don’t listen to Jerome Powell because they think he is some kind of economic guru with insights the rest of us lack. They listen to him because they want to know what he’s going to do.

The reason they care about what he says is because they want to figure out how to position their trades. Because it’s not about what’s actually going to happen. It’s about what Powell thinks is going to happen. That’s what people care about. What does the Fed think is going to happen? And then they can decide, well, if the Fed thinks this, what are they likely to do? And Powell actually talks about what he’s likely to do. Now, maybe it’s just a bluff, but it doesn’t really matter to the markets because traders react to what the Fed says and what the Fed claims they’re going to do. So, it’s not because he knows what he’s talking about. It’s just because everybody wants to know what he’s thinking about doing, or what he’s pretending that he’s going to do, because that is important for short-term traders.”

Powell doesn’t have a clue what inflation will be next year or how high interest rates will be. He’s just guessing. Peter said his guess is probably worse than a random guess because it’s heavily biased by politics.

That’s one of the reasons he keeps talking about how strong the economy is — because it’s Joe Biden’s economy. He’s trying to validate Bidenomics, so his marching orders are ‘talk about how great this economy is.’ That way, Joe Biden, who renominated him, so he’s going to do exactly what that guy wanted, he wants to put a nice bow on this economy and present it as if it’s strong and everything is good so Biden can claim credit for it.”

Meanwhile, the Fed can also claim credit as the architect of this great economy, and Powell can claim credit for fighting inflation in a way that hasn’t damaged the economy.

Speaking of the economy, Powell insisted that it is much stronger than expected. And because the Fed is surprised by the strength of the economy, there is much more work to be done. We may see more rate hikes, the the Fed may leave interest rates higher for longer. But it’s not because of inflation. It’s because of the strong economy.

“Broadly, stronger activity means we have to do more with rates, and that’s what that meeting is telling you,” Powell said during his press conference.

Peter said, “He’s not going to admit that the reason rates are going up is because of inflation. It’s inflation that’s strong, not the economy.”

Peter goes on in the podcast to break down some of Powell’s specific comments.

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