by Jamie White October 3rd 2022, 1:01 pm
Bank of England has already pivoted from its interest rate-hike policy and resumed endless money-printing measures responsible for the current high inflation.
How long until the Fed follows suit?
The Federal Reserve and other central banks must stop raising interest rates or risk plunging the global economy into recession, the United Nations warned on Monday.
The United Nations Conference on Trade and Development (UNCTAD) issued a report claiming that every percentage point rise in the Fed raises interest rates lowers economic output in other rich countries by 0.5% and poor countries by 0.8%.
“There’s still time to step back from the edge of recession,” said UNCTAD Secretary-General Rebeca Grynspan said in a statement. “We have the tools to calm inflation and support all vulnerable groups.”
“But the current course of action is hurting the most vulnerable, especially in developing countries and risks tipping the world into a global recession.”
Notably, several economic metrics show the U.S. has already slipped into recession under Joe Biden.
The Federal Reserve claims it has been raising interest rates in a bid to fight inflation, but its interest rate target range is 3.00 to 3.25% as of Sept. 21, while the official inflation rate remains at about 8.3% year over year.
In other words, despite its hawkish rhetoric, the Fed’s interest rate hikes have come nowhere close to actually fighting inflation.
The U.N.’s pleas appear to be unnecessary, because some central banks are already beginning to reverse course and resume endless money printing policies.
The Bank of England has already abandoned its interest rate hike measure after hitting 2.25% and returned to quantitative easing last week — the very monetary policy that has helped bring the country’s inflation to 10% by expanding the money supply — to rescue the falling bond market.
Economist Peter Schiff explained that BoE Governor Andrew Bailey’s decision to return to inflationary policy soon after staunchly vowing to fight inflation shows central banks have been bluffing because they know they are unable to actually fight inflation.
“The Bank of England folded. They pivoted. They decided to launch a new QE program. Remember, yesterday, they were committed to quantitative tightening. Now they said they will buy whatever it takes,” Schiff said on his podcast Thursday.
“They have committed to another QE infinity in order to prop up the bond market. They now have to print British pounds to buy these gilts. So, instead of fighting inflation, which yesterday was public enemy number one – it had to be brought down at any cost – now, all of a sudden, when you see the cost, well, forget about that. We’re now going to create inflation.”https://www.youtube.com/embed/pafAkLPcL9E?start=107
Worse still, what happened with the BoE will soon be followed by the Fed and other central banks, Schiff claims, because they don’t have the political will to stomach the short-term pain necessary to bring inflation under control.
“Is the Federal Reserve, when confronted with the same situation, will they make a different choice than the Bank of England? Does the Federal Reserve have more integrity? Are these guys willing to allow a financial crisis? Because the same thing is going to happen here,” he said.
“We’ve got all sorts of leverage in our markets. We’ve got a bigger debt bubble than the British. It’s just that the day of reckoning for us is not going to come as early as it did for them because the dollar is going up.”
It’s only a matter of time until Fed Chairman Jerome Powell follows the BoE and not only halts raising interest rates, but lowers them back to 0%.
“I don’t care how much he wants to bark about being tough on inflation. At the end of the day, he will not bite. The Fed is a paper tiger and it will fold just as quickly as the Bank of England when they’re confronted with an actual crisis,” Schiff said.
The U.N.’s calls to central banks to halt interest rates hikes highlights the fact that major institutions are unwilling for markets to experience short-term economic pain to bring inflation back to 2.00%, and will instead surrender to inflation, which will prolong and exacerbate the economic downturn via an inflationary depression.