Peter Schiff sees terminal Fed Fund rate closing in, as US consumer loan delinquencies surge to a 13-year high.

US Households are under severe stress as the mortgage payments on a typical home loan have surged by over 50% since last year, 2022. 

Gen Z and millennial auto loan delinquencies by 90 days or more are soaring at 2.21%, compared with 1.66% before the pandemic. 

The average monthly payment for a new car is up 26% since 2019 to $718 a month. Other costs associated with owning a car, such as gas, maintenance, and insurance have all shot up.

“US Households are under severe stress as the mortgage payments on a typical home loan have surged by over 50% since last year, 2022”

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With borrowing costs, so high auto repossession could be just starting.

Jeremy Cross, the president of International Recovery Systems in Pennsylvania, said he can’t find enough repo men to meet the demand or space to hold all the cars his company has been tasked with repossessing. 

Moreover, corporate layoffs in 2023 are accelerating, not seen since the Great Recession of 2008.

Companies with layoffs in 2023:

  • Dell layoffs: 5% of workforce laid off (February 2023)
  • HubSpot layoffs: 7% of workforce laid off (February 2023)
  • PayPal layoffs: 7% of workforce laid off (February 2023)
  • IBM layoffs: 1.5% of workforce laid off (January 2023)
  • Gemini layoffs: 10% of the workforce laid off (January 2023)

Corporate layoffs have a multiplier impact on the local economy.  

So in an attempt to stamp out the inflation fire, the Fed has implemented its most aggressive tightening policy in four decades, which has taken the Fed fund rate to 4.75%.

“Corporate layoffs have a multiplier impact on the local economy”

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Peter Schiff sees terminal Fed Fund rate closing in, but a pause and a rate cut coming sooner rather than later

Policy time lag means that the Fed tends to go policy overkill. So when it wants to dampen economic activity it implements a too-hawkish policy and over-tightens and vice versa.

The current hawkish trajectory almost broke the UK gilt market and GBP in 2022. Mass corporate layoffs in 2023 and a potential tsunami of loan delinquencies would make the subprime mortgage crisis of 2008 look benign by comparison.

So Peter Schiff sees the terminal Fed fund rate in sight. He believes the Fed is nearly done with hiking rates. The market consensus is that there will be another 25bps hike in February, but in light of the rapid economic deterioration, the Fed might decide to pause its rate hike.  

“The markets are behaving as if the tightening cycle is finished,” he said.  

“I think traders are looking at the softening economic data and a pullback in some of the inflation measures that we’ve had in recent months, and they think that the Fed is done hiking now even though Powell indicated a couple more hikes are coming,” he added.

“Keep in mind, inflation is a tax. It’s how we pay for big government”
Peter Schiff

Declining inflation is not why Peter Schiff sees the terminal Fed fund rate in sight 

“So, the markets may be right that the Fed stops hiking. But not because inflation comes down, but because the economy comes down,” he said.  

Peter believes weakness in the dollar will be the catalyst for another explosive increase in commodity prices.

He noted declining commodity prices are what keep goods down in price.

“But as commodities start to make new highs when the dollar makes new lows, that’s going to throw cold water on that theory, and people are once again going to be afraid of higher inflation. But I think the Fed is afraid to fight it because it’s afraid of what that fight might do to a much weaker economy and weaker labor market than what the Fed now expects,” he said. 

During his press conference, Jerome Powell acknowledged that pain inflation causes Americans.

“Because the real cause of inflation is the US government and the Federal Reserve acting in concert with one another, where the US government spends money it doesn’t have, and then the Fed prints the money for the government to spend — that is why we have inflation,” said Peter Schiff.

“Keep in mind, inflation is a tax. It’s how we pay for big government.

Powell said to get inflation back to 2% will require below-trend economic growth for some time and a softening of labor market conditions. Peter said this is one of many concepts Powell got wrong,” he added. 

“Powell wants people to think that inflation is created by the private sector, that the Fed is just some innocent bystander — and the government,”
Peter Schiff

Peter Schiff believes that it is the growth in the money supply that causes inflation

Prices fall by increasing output, but the Fed rate hikes are causing businesses to shelve investments, lay off workers, and cut output, leading to scarcity, and higher prices, argued Peter Schiff.  

“To bring down inflation, you don’t need to restrain economic growth. You need to restrain the growth of the money supply. You need to restrain spending that results from money printing or excess credit,” he said.

“And we don’t need to put people out of work to bring down prices.

We need to put more people to work. People working means we produce more stuff. The more stuff we have, the lower the price of that stuff,” he added.

The Fed is not serious about fighting inflation, which is also why Peter Schiff sees the terminal Fed Fund rate approaching

“The large deficit spending going on in Washington D.C. is exacerbating the situation by flooding the economy with fiscal stimulus.

That is interfering with the Fed’s fight against inflation. If the Fed were serious about fighting inflation, Powell would demand that the federal government cut spending. Instead, he is doing the opposite [by urging Congress to raise the debt ceiling,” he said. 

Peter Schiff noted that it is not wage growth and consumers causing inflation. Instead, fiscal and monetary policy causes inflation. 

Indeed, state capitalism is similar to a planned economy where bureaucrats decide where capital goes, what to produce, and for whom.  

“Powell wants people to think that inflation is created by the private sector, that the Fed is just some innocent bystander — and the government,” but Peter Schiff thinks nothing could be further than the truth.