Peter Schiff, chief economist and global strategist at Euro Pacific Asset Management, has said that the United States’ ‘inflation is too high and headed higher’.
In an X post on July 29, Schiff noted that the Federal Reserve may not tame inflation with a 25- or 50-basis-point increase. Essentially, he pointed out that a 0.25% to 0.50% spike in the Fed’s interest rate from 3.50% to 3.75% could still be accommodative of rising inflation.
“Inflation is too high and headed higher. Even if the Fed hikes the federal funds rate by 25 or 50 basis points today, it’s too little, too late to make a difference, as rates will still be accommodative,” Schiff highlighted.
The expert argued that the Fed must reduce its balance sheet and shrink the money supply to counter high inflation. Furthermore, the U.S. M2 Money Supply has continued to expand, hitting a fresh all-time high of over $23.29 trillion in July, according to official data.
Additionally, the Fed previously warned that the AI boom has fueled persistent inflation, as Finbold reported. As such, Schiff concluded that the Fed may need to shrink the money supply and reduce its balance sheet.
“The Fed also must shrink the money supply and contract its balance sheet,” he added.
Schiff cautions on attempts to fight inflation
Meanwhile, Schiff emphasized the worst-case scenario of any attempt to fight inflation by the Fed could be a market crash.
“Any real attempt to rein in inflation will crush markets and the economy, forcing the Fed to reverse course,” he pointed out.
At the time of reporting, traders had set the likelihood of zero Fed rate cuts in 2026 at 87.6%, as per metrics from Polymarket. On the other hand, Polymarket traders show a 77% chance that the Fed could hike interest rates this year.
Consequently, Schiff believes the Fed is operating on a tight balancing act between inflation control and the risk of destabilizing financial markets and economic growth.
