Peter Schiff, Chief Economist and Global Strategist at Euro Pacific Asset Management, recently issued strong criticisms of the Federal Reserve's latest economic policies. He warned on social media that the Fed's actions are laying long-term hidden dangers for the U.S. economy, especially concerning inflation. In light of the potential rise in inflation, Schiff believes that the Fed's decision to cut rates will not effectively alleviate deep-seated economic problems.
Schiff bluntly stated: Rate cuts may be a disguise for a financial crisis
This Wednesday, the Federal Reserve announced a reduction of the benchmark interest rate by a quarter of a percentage point, marking the third rate cut this year. However, Schiff expressed strong doubts, believing that this is merely a short-term action to avoid a financial crisis or boost asset markets, rather than a measure to control inflation. He pointed out that the Fed's rate-cutting policy is not aimed at addressing inflation but is intended to provide a 'lifeline' to struggling banks and the labor market.
Schiff predicts that inflation will continue to rise in 2025. He criticized Federal Reserve Chairman Powell for the inconsistency between his words and actions, arguing that the Fed's rate cuts are too hasty and that interest rates are far from restrictive levels. Schiff bluntly stated, 'Inflation cannot return to 2% within two years; it will be higher than it is now.'
The Federal Reserve's economic forecast for 2025: Intensifying inflation pressures, a more challenging future ahead
The Federal Reserve recently significantly raised its interest rate expectations for 2025, from 3.4% in September to 3.9%, and inflation expectations were also revised up from 2.1% to 2.5%. Federal Reserve Chairman Powell argued that the slowing pace of rate cuts is due to this year's inflation being higher than expected, and growing concerns about sustained inflation in 2025. However, Schiff does not buy this argument; he believes the Fed will face greater challenges, and this strategy can only delay the arrival of an economic crisis without effectively addressing the root problems.
Deficits and fiscal policy: The invisible bomb of the U.S. economy
Schiff also warned that the U.S. is facing an unprecedented fiscal deficit problem, and this situation will become even more complex with Trump about to take office. According to the U.S. Treasury, government spending has reached a record $668 billion, while the fiscal deficit is rapidly expanding, with the deficit for fiscal year 2025 expected to exceed $3.5 trillion. Schiff believes this fiscal imbalance will greatly weaken the real economy and lead to economic instability.
Additionally, Schiff criticized Trump's economic policies, particularly his strategy regarding the international energy market. He believes Trump may create domestic energy supply tightness by demanding that the EU increase its purchases of U.S. energy, which would push energy prices higher. This would intensify the economic pressure on households and raise interest rates, further dragging down the U.S. economy.
Trump's 'cost-cutting' policy: defaulting on debt, unlimited congressional expansion
In criticizing Trump's economic policies, Schiff also mentioned Trump's 'cost-cutting' policy, stating that it called for debt reduction but forced the House Republicans to vote to suspend the debt ceiling. Schiff believes this action will lead to unlimited increases in debt by the U.S. Congress and exacerbate future fiscal burdens.
Conclusion: Schiff's warning: Where is the U.S. economy headed?
Schiff's warnings once again reveal the complex situation facing the U.S. economy. Whether it is the Fed's rate cuts or the ever-expanding fiscal deficit, the coming years will be full of challenges. Whether the U.S. economy can stand firm in this storm remains a matter worth pondering.
