Peter Schiff, chief economist and global strategist at Euro Pacific Capital, said he doesn’t believe in the hype on the Federal Reserve’s hawkish pause on rates.
“If the #Fed really was hawkish it wouldn’t have skipped this rate hike. There’s a good chance that the Fed’s next move on rates will be a cut, not because #inflation is lower, but because the labor market finally cracks,” Schiff said in his tweet.
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The economist’s comments follow the central bank announcing a pause in its rate hike campaign after ten successive increases to tackle decades-high inflation. What did appear as a point of concern was the Fed’s indication it may hike rates by another 50 basis points this year.
Another interesting fact from the policy was Fed Chairman Jerome Powell’s skepticism on the matter of rate cuts which managed to raise eyebrows among market participants, leading to a hawkish perception. “…it will be appropriate to cut rates at such time as inflation is coming down really significantly and again we’re talking about a couple years out,” Powell had said Wednesday.
Powell asserted in his speech that not a single person on the committee wrote down a rate cut this year. “Nor do I think it is at all likely to be appropriate if you think about it. Inflation has not really moved down. It has not so far reacted much to our existing rate hikes. And so we’re going to have to keep at it,” the Fed Chair said.
On Rate Pause: Schiff believes the Fed Chair’s decision to pause the rate hike does not make sense given the fact that Fed still acknowledges the upside risks to inflation. “Powell is clearly worried about the evolving financial crisis but doesn’t want to spook markets. So he’s done hiking, but doesn’t want to admit it,” Schiff said in his tweet.
Although major Wall Street indices ended in the green following the Fed’s policy announcement, bond traders seemed to be raising their bets on the probability the central bank will likely tip the U.S. economy into a recession. The iShares 1-3 Year Treasury Bond ETF SHY shed 0.06% on Wednesday while the Vanguard Short-Term Treasury Index Fund ETF VGSH lost 0.05%, according to Benzinga Pro.
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