by Peter Schiff, Schiff Gold:
As expected, the Federal Reserve raised interest rates by 50 basis points at the December Federal Open Market Committee (FOMC) meeting. That pushed the federal funds rate to 4.5%. The last time rates were this high was in 2007. That’s bad news for an economy addicted to easy money.
While the pace of rate hikes slowed, the messaging coming out of the Fed was substantially the same as the November meeting.
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The official FOMC statement was nearly identical to the November statement. The committee only made some slight changes to the verbiage describing the impact of the Russia-Ukraine war on the global economy.
The messaging relating to the future trajectory of monetary policy was unchanged. The statement said the committee “anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time.” It also said the committee will continue to take into account “cumulative tightening” and “the lags with which monetary policy affects economic activity and inflation” as it makes future decisions.
As he did after the November meeting, Federal Reserve Chairman Jerome Powell sounded a hawkish tone. He said, “We have more work to do,” and emphasized that rates would move higher and stay higher longer than initially anticipated.
My view and my colleagues’ view is that this will take some time. We have a long ways to go to get back to price stability.”
Powell also dismissed the notion that the central bank might cut rates next year.
Powell claimed that the Fed has now pushed interest rates into “restrictive” territory. But it’s unclear how he arrived at this conclusion. With CPI still over 7%, real interest rates remain negative. That means the Fed continues to run an accommodative monetary policy. Yes, the Fed has tightened significantly, but it is still behind the inflation curve. In effect, it has slowed the flow of gasoline onto the inflationary fire, but it continues to pour gasoline on the inflationary fire.
When asked about the pain of inflation, Powell said Americans would suffer worse pain if the central bank failed to act and let inflation run out of control. In a tweet, Peter Schiff said that is a moot point.
Inflation is already out of control and the time for the Fed to have acted to prevent it without triggering a severe financial crisis has long since past.”
