Tags: Schiff | Yellen | Fed | rates

Euro Pacific's Schiff: Don't Believe Yellen, Fed Won't Raise Rates

By    |   Thursday, 28 May 2015 07:00 AM

Federal Reserve Chair Janet Yellen said last week that the Fed will likely boost interest rates this year if economic growth and inflation match policymakers' expectations.

Fat chance, says Peter Schiff, CEO of Euro Pacific Capital.

"The real disconnect lies in the failure of the economy to grow, as most people assumed that it would, after the Fed's quantitative easing and zero interest rates had supposedly worked their magic," he writes in his weekly commentary.

"As long as these monetary policies persist, our economy will never return to the growth rates that would be considered healthy."

GDP expanded just 0.2 percent in the first quarter, and the Atlanta Fed's forecasting model puts growth at only 0.8 percent for the second quarter.

"I believe that the Fed wants us to think that the economy is strong, in the hopes that perception may one day soon become reality," Schiff says. "But 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."

Meanwhile, star mutual fund manager John Hussman, president of Hussman Investment Trust, says the end result of the Fed's massive easing program won't be pretty for the economy and financial markets.

"The Fed has now created the third financial bubble in 15 years," he writes in his latest market commentary. "Focusing on two variables — inflation and unemployment — the Fed has missed the most important consideration: the risk to financial stability."

That's what happened in last decade's housing bubble, and "this mistake will ultimately end just as tragically" both for the economy and financial markets, Hussman states.

As for stocks, "our concerns remain extremely high due to the combination of obscene valuations and unfavorable market internals," he explains. The S&P 500 index carried a price-earnings ratio of 21.58 Friday, up from 18.04 a year ago, according to Birinyi Associates.

"While we continue to monitor the evidence for any shift, it's important not to assume that Fed easing (or a delay of Fed rate hikes) would necessarily provoke a favorable shift in market internals, or would necessarily produce a shift back to risk-seeking."

Don't count on a delay in Fed rate hikes boosting stocks, Hussman says. "Examine the worst market collapses in history, and you'll often find the Federal Reserve easing the whole time," he writes. "Don't fight the Fed, indeed."

The Fed has kept its federal funds rate target at a record low of zero to 0.25 percent since December 2008.

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Federal Reserve Chair Janet Yellen said last week that the Fed will likely boost interest rates this year if economic growth and inflation match policymakers' expectations.
Schiff, Yellen, Fed, rates
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2015-00-28
Thursday, 28 May 2015 07:00 AM
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