Fed’s capacity to lower interest rates to zero during periods of high inflation
Gold would need to see a weaker dollar and bond yields to claw its way back above 1,900 dollars, which “could require a particularly weak set of inflation figures and for hawkish Fed bets to be scaled back”, City Index Senior Analyst Matt Simpson said.
Peter Schiff, a global financial strategist at Euro Pacific Capital, doubts the Fed’s capacity to lower interest rates to zero during periods of high inflation. The US Federal Reserve will next determine short-term interest rates on November 1. Fed Chair Jerome Powell has made it clear that decision will depend on the data.
Economist Peter Schiff has warned of an impending biggest bond market crash in US history. He attributes the recent bond price decline to reduced demand due to inflation and mounting national debt concerns.
Peter Schiff mentions in his recent tweet, “We are still early in what will become the biggest bond market crash in US history. Given that the US economy is more levered now then at any time in history (governments, corporations, and individuals,) the coming economic and financial crisis will be unprecedented in size.”
Furthermore, Peter Schiff believes the government will resort to printing money, leading to high inflation in the US. By September 30, the end of the 2023 federal fiscal year, the Fed will have spent about 110 billion dollars to cover cash losses about 9 billion dollars in operating expenses and a bit more than 100 billion dollars in net interest expense. A 110 billion dollar loss is big by any standard, and yet the mystique surrounding the Fed’s money printing power has led many to dismiss the importance of these losses. Here are the selective segments from a recent video where Peter Schiff shares his viewpoints.
Peter Schiff believes that the recent increase in mortgage yields was expected. Today’s average 30-year fixed mortgage rate is 7.83 percent, up 24 basis points since the same time last week. A month ago, the average rate on a 30-year fixed mortgage was lower, at 7.53 percent.
After a stretch of record lows, rates climbed in 2022 thanks to inflation and the Federal Reserve’s response.
Meanwhile, Peter predicts ongoing difficulties for bond investors and contends that long-term interest rates should be higher due to inflation risk.
US and German government bond yields were set to end September with their biggest quarterly rises in a year, disappointing fund managers who were hoping for relief from the historic losses bonds suffered in 2022, when the US Federal Reserve and other central banks raised interest rates to contain surging inflation.
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Credit to : Finance Flow
