Money & Markets - Peter Schiff: Fed Doubles Up Stealth QE as US Spirals Toward Recession

October 08, 2019

Article by JT Crowe in Money & Markets

With news that the Institute for Supply Management index of national factory activity dipping to a 10-year low and contracting for the second straight month, indicating contraction in the manufacturing sector, stock markets faced a major sell-off through the middle of last week.

Economist and precious metals expert Peter Schiff said that the service sector is next up to follow manufacturing into a recession.

The ISM index fell from 56.4% in August to 52.6% for September, the lowest reading in three years and a big drop off that was much weaker than the expected 55.5%. Economic talking heads are now warning that sagging service sector data will only compound growing recession fears.

The ISM news sent the Dow tumbling 300 points, only to see it recover later in the day because the likelihood of the Federal Reserve cutting interest rates again rose to 90%.

“So what basically saved the market was the increased probability that the Fed was going to come to the rescue of the market by cutting rates,” Schiff said.

“I think that there already is enough expectations for rate cuts that the probability going up is not enough to really put in a floor on the market.”

As far as QE, Schiff didn’t mean another round of bond buying similar to what happened three time during the Great Recession, but rather the Fed’s repo buys when the Fed’s balance sheet grew by $88.1 billion in just a week.

The Fed has continued repo buys, ballooning its balance sheet $176 billion over the past three weeks. Before you know it, Schiff said, the balance sheet will be back to $4 trillion like when it was buying $85 billion worth of bonds every month, wiping out all of the gains made to reduce the load.

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