Peter Schiff On The Fed’s Audacity

Submitted by Peter Schiff of Euro Pacific Capital,

There can be little doubt that last week’s Fed announcement was an epic attempt at rhetorical audacity. The message they hope to convey is that they are tightening monetary policy by loosening it. Based on the market reactions, the trick has seemed to work. 
 
I believe the Fed was forced into this exercise in rabbit pulling because it understands far better than the cheerleaders on Wall Street that the economy, despite the soaring gains in stocks and real estate, remains dependent on continued stimulus. In my opinion the seemingly positive economic signs of the past few months are simply the statistical signature of the QE itself. There is little evidence to suggest that the trends are self-sustainable. But seemingly strong data had made the arguments in favor of continued QE increasingly untenable. As they could no longer stay the course the Fed had to do something. Ultimately they decided to play it both ways.
 
As far as the headline grabbing taper decision, the Fed’s hands were essentially tied by widely held expectations. Perhaps spurred by a desire to initiate the end of QE before he leaves the chairmanship, Ben Bernanke did surprise some by announcing the taper now instead of allowing Janet Yellen to do so in March. The $10 billion reduction has convinced many that the QE program will soon become a thing of the past. At his press conference Bernanke affirmed that he expects QE to be fully wound down by the end of 2014. Look for those forecasts to change rapidly.

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