Peter Schiff: The Fed's decision is merely symbolic and "will have no real effect!"

FXStreet, September 17 — His core viewpoint is that a 5% yield on long-term bonds is just the beginning. He states that the 40-year bull market in the bond market ended in 2020. We are now only in the sixth year of what could be a 20-year long-term bear market, and the pace of interest rate increases will surpass the previous speed of rate declines.

Peter Schiff: The Fed's decisions are merely symbolic gestures, "and will have no real effect!"

The ten-year U.S. Treasury yield hit 4.97%, reaching a 19-year high, while the thirty-year U.S. Treasury yield stood at 5.35%. In response, Peter Schiff did a show titled "The Cost of All Loans is About to Rise."



His core viewpoint is that a 5% yield on long-term bonds is just the beginning. He states that the 40-year bond market bull run ended in 2020. Now we are only in the sixth year of a possibly 20-year long bear market, and the pace of rising interest rates will be faster than the previous drop.

This rise in yields differs from similar historical situations: currently the US debt stands at around $40 trillion, with the average maturity being relatively short, and the Treasury must refinance its massive outstanding debt at much higher coupon rates.

The August Consumer Price Index (CPI) left the Fed with no way out. Prices rose 0.4% month-on-month and 3.4% year-on-year; core CPI increased by 0.3% MoM, higher than the expected 0.2%. The Producer Price Index (PPI) soared to 5.4% YOY, while oil prices returned above $100 per barrel. The consumer confidence index fell from 51.7 to 47.8, and inflation expectations for the year ahead rose from 4% to 4.6%.

Schiff hopes the public will revisit his previous remarks on Fox News: “I went on Fox News and told the truth. Prices would continue to rise, and at a faster clip. Some people said I was talking nonsense, that I didn’t understand the market. But facts have proved I was completely right.”

From his perspective, interest rate hikes are nothing but a performance. “Now it’s the moment of truth. The Fed’s 25-basis-point hike is just for show, a symbolic move that will have no real impact.”

Waller had already sent enough strong rate hike signals; if the hikes stopped now, the little credibility the Fed had left would be severely damaged. Even though the pace of CPI and PPI increases has already outstripped policy rates, the Fed still chose to raise rates by 25 basis points, which in practice means monetary policy remains accommodative.

The US Treasury has already doubled the size of bond buybacks to $6 billion, yet yields keep rising. Schiff believes this action signals Washington’s deep concern rather than serving as an effective tool to anchor the yield curve.

For the week, gold closed near $4,338, silver at $64.36, both slightly down. Schiff calls this drop a buying opportunity: even if precious metals are under short-term pressure, the overall backdrop of a bond bear market remains bullish for precious metals. US stocks closed down about 1% for the week.

This precisely matches the sequence of events he’s described for months: first, the bond market collapses; all types of household and US government loans are repriced; then the stock market follows down.

While the government is still dressing up symbolic rate hikes as “tightening” policies, physical precious metals remain the assets worth owning.

The program also features Schiff’s typical political commentary: the government added nearly $4 trillion of new debt in 20 months, yet still promises a so-called $5,000 “dividend;” officials claim food prices are “plummeting fast,” but CPI data says otherwise; while employment numbers hit new highs, labor force participation is at historic lows; and so-called “major statutory claims” are really just inflationary policies, not miracles of supply-side reform.

On the 25th anniversary of 9/11, his remarks on that issue even drew more attention than his views on rates: “America’s greatest terrorist threat doesn’t come from foreign terrorists, but from our own government in Washington.”

He believes that the decline of Americans’ freedoms stems from the laws enacted post-9/11, not from the attacks themselves.

If inflation surges again, and the US government—the ultimate borrower—is already the biggest debtor in history, then yields at 19-year highs are nowhere near the top. “We are heading in the wrong direction, inflation will not fall, it will only continue higher.”

If Schiff is right, then the future cost of every mortgage, car loan, and every new US Treasury issuance will continue to rise. And the precious metals now being sold off due to rate hike news will benefit in an era where 5% is no longer the interest rate ceiling.