Tags: Schiff | Fed | QE | taper

Peter Schiff: 'Fed's Next Big Definitive Announcement Will Be an Increase in QE'

Friday, 21 Jun 2013 08:12 AM

By John Morgan

The next Federal Reserve monetary announcement will be an unexpected expansion of quantitative easing (QE) — not the contraction or tapering that nearly everyone expects — because otherwise the training wheels on the economic recovery will fall off, according to Peter Schiff, CEO of Euro Pacific Capital.

Schiff, a regular Fed critic, predicted in a column for Real Clear Markets that the central bank will have no choice but to "keep its foot firmly on the accelerator."

"Although many haven't yet realized it, the financial markets are stuck in a 'Waiting for Godot' era in which the change in policy that all are straining to see, will never in fact arrive."

Economist Predicts 'Unthinkable' for 2013

In recent months, Schiff said it has become clear that expectations about QE have had a larger impact on the stock, bond and real estate markets than any other economic data have.

"Rather than focus on the long term, the Fed is guided by the short-term realization that any significant withdrawal of support will cause a steep sell off on Wall Street, a spike in interest rates and an end to the reflating housing bubble," Schiff wrote.

"They are not prepared to tolerate any of these outcomes ... I believe that the Fed's next big definitive announcement will be an increase in QE rather than a diminishment."

The Economist columnist Buttonwood likewise predicted a "long goodbye" for QE.

"We might get to tapering but your blogger doubts whether the end of QE is coming as soon as the markets fear. The U.S. economy may not look that bad but things are slowing in the emerging world; China recorded a weaker-than-expected [Purchasing Managers' Index] while there seems to be a credit squeeze going on."

Buttonwood was dismissive of the selloff in financial markets that followed the Fed's announcement Wednesday that it expects to start cutting back its $85 billion in monthly bond purchases later in 2013.

"Investors reacted ... like trust fund kids being told that daddy is going to cut their monthly allowance. How are they going to cope without the Fed's largesse?

"It is a sad state of affairs that the supposed 'masters of the universe' who pride themselves on their Darwinian skills in beating the market should be so dependent on what is, in effect, an arm of central government."

Video: Economist Predicts 'Unthinkable' for 2013

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