Trump And The Fed's Policies Will Spark 1970s-Style Inflation Shock, Says Peter Schiff: 'Average Americans Will Suffer'
Leading economists warn of a potential inflation shock reminiscent of the 1970s, driven by President Trump's policies and an anticipated interest rate cut by the Federal Reserve. Economist Peter Schiff predicts that average Americans will suffer more due to these inflationary pressures, while well-positioned investors may benefit. Macro strategist Jim Bianco cautions that the Fed may misinterpret labor market data, leading to rate cuts that could exacerbate inflation rather than boost employment. Daniel Altman suggests the Fed may cut rates as a trial, amidst concerns about financial conditions being too favorable for such actions.
Leading economists are sounding the alarm in the lead-up to the Federal Open Market Committee meeting next week, with warnings of a sharp rise in inflation that will take a toll on working families.
1970s-Style Inflation Shock
On Thursday, in a post on X, Economist Peter Schiff warned that, together, the policies of President Donald Trump and the potential interest rate cut by the Federal Reserve next week, “will be the most inflationary since the 1970s,” while adding that given the “much weaker financial position the U.S. is in now than it was then, the consequences will be greater.”
Schiff, who has long been a vocal critic of both the Federal Reserve policy and the deficit-driven fiscal strategies, says, “Average Americans will suffer more,” as a result of these policies, but notes that investors who are positioned correctly, “will profit more.”
Supply Of Labor Is Falling With Demand
Macro Strategist Jim Bianco of Bianco Research is concerned that policymakers may be misinterpreting labor market data. He says, “the Fed is getting set to cut rates later this month on the assumption that the labor market is slowing faster than the supply of labor,” but he notes that labor supply has been falling along with demand.
“In other words, yes, the payroll hiring is weak, but we do not need to hire that many people, given the big slowdown in population growth,” primarily due to deportations and immigration crackdowns.
As a result, Bianco says that stimulating the economy with rate cuts will not “increase employment, but rather foster higher inflation.”
The Fed Will Trial Balloon Rate Cuts
Author and economist Daniel Altman says that he sees the Federal Reserve cutting interest rates by 25 basis points this month, but “as a trial balloon because I think it wants to see how the economy will react to that loosening of credit,” during his appearance on CNN’s Quest Means Business.
Earlier this week, fund manager and columnist Ruchir Sharma echoed similar concerns, saying that Trump’s rate cut demands were a “recipe for a bubble.”
“The Fed has never cut interest rates, let alone start an easing cycle, when financial conditions have been this easy,” he said, adding that “credit spreads [are] close to record lows” and “the stock market’s obviously very ebullient given the valuations.”
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