The macroeconomic situation continues to be fluid amid the uncertainty surrounding inflation and the interest rate outlook, with some beginning to sound out warnings of a long recession.
What Happened: Following Federal Reserve’s recent rate decision, gold bull Peter Schiff tweeted a bleak outlook for the economy. The economist ruled out the possibility of a soft landing.
“Anyone expecting a soft landing doesn’t understand the situation,” he said, adding that he doesn’t see any landing at all.
“The #economy will just crash and burn,” Schiff said.
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Schiff blamed the predicament on the Fed’s zero-interest policy and quantitative easing as it strived to delay the inevitable.
Why It’s Important: Post the COVID-19 outbreak, the Fed lowered the fed funds rate, which is its key policy rate, to near zero and maintained it at that level for about two years. The Fed is blamed for being behind the curve and continuing with the “near-zero” rate regime even as pricing pressure began to rise.
It was only in March, the central bank began raising rates. Between March and December, it hiked rates by a cumulative 4.25% percentage points.
The Fed also used quantitative easing as a tool to keep the economy growing. Quantitative easing allowed the apex bank to purchase U.S. treasury bonds and mortgage-backed securities, thereby injecting reserves into the banking system. In the process, it more than doubled its balance sheet from before the pandemic.
Critics say that this was one of the reasons for the red-hot inflation, which has only recently started to relent.
Along with the first rate hike since the pandemic in March, the central bank ended the quantitative easing and embarked on quantitative tightening in June.
Image and article originally from www.benzinga.com. Read the original article here.