Gold bull and economist Peter Schiff on Friday warned that a renewed spurt in inflation could be in the cards.
What Happened: The main reason why the annual rate of inflation slowed from 9% to 3% was the huge rally in the U.S. dollar, Schiff said. “Now that the dollar is poised to surrender those gains, annual CPI prints will head back up to 9%,” he said.
A weaker dollar raises the cost of imports, which will feed into consumer prices in the U.S.
The Federal Reserve left the fed funds rate unchanged at a 22-year high of 5.25%-5.50% for a second straight meeting on Wednesday. Chairman Jerome Powell sounded dovish during the press conference that followed. He said progress has been made on inflation and inflation expectations “were in a good place.” The risks were now “more two-sided” and almost “balanced,” he added.
If the Fed begins to cut interest rates and reverse the monetary policy tightening it has been implementing since March 2022, the dollar could take a hit.
Schiff also noted that higher interest rates would just be another cost that businesses would pass on to consumers.
Inflation Bottoming? From a peak of 9.1% in June 2022, the annual consumer price inflation rate has been on a downward trajectory.
Schiff noted that the U.S. Dollar Index put in a decisive top with an outside reversal week, where the index took out the prior week’s high, then closed below the prior week’s low. “A dollar top reaffirms an #inflation bottom,” the economist said. That means the consumer price inflation will be moving further above the Fed’s 2% target, he added.
It’s not just interest rates that will stay higher for longer, but inflation will also stay much higher for much longer, the economist said. “Investors still haven’t realized this. They’re about to learn a lesson the hard way,” he added.
The iShares TIPS Bond ETF (NYSE:TIP), an exchange-traded fund that tracks the investment results of an index composed of inflation-protected U.S. Treasury bonds, ended Wednesday’s session up 0.51% at $104.24, according to Zenger News Pro data.
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