U.S. economic data was not what the market was hoping for last month, and economist Peter Schiff sees it as a sign that the U.S. could be heading toward “a full-blown financial crisis.”
As Schiff noted, February data showed import prices climbing 1.3% and export prices rising 1.5%. When annualized, he argued, the figures imply inflation running roughly between 16.8% and 19.6%.
What’s more, these estimates come before factoring in a recent 50% surge in oil prices, which he said could further intensify inflationary pressures.
“We are headed for a full-blown financial crisis. February import prices spiked 1.3% while export prices surged 1.5%, annualizing to inflation rates of 16.8%–19.6%. That’s before oil rose 50%. Unless the Fed raises rates several hundred basis points now, inflation will skyrocket,” Schiff wrote.
To address the challenges on the horizon, Schiff urged the Federal Reserve to respond aggressively, warning that interest rates would need to rise “several hundred basis points” to prevent inflation from accelerating further.
The U.S. is up for a crisis worse than 2008
In addition to inflation, Schiff also touched on the housing market, arguing that rising costs tied to homeownership could trigger a downturn in real estate prices. In fact, he pointed to a recent drop in mortgage and refinancing applications as an early signal of stress in the housing sector.
However, according to the economist, this decline may only represent the “tip of the iceberg,” as he believes the underlying risks in the financial system could surpass those seen during the 2008 financial crisis.
“As inflation causes homeownership costs to soar, including mortgage rates, insurance, utilities, maintenance, and taxes, real estate prices will crash. The recent collapse in mortgage and refi applications is the tip of the iceberg. What lies beneath is a crisis worse than 2008,” he added.
Overall, then, the point that the market analyst tried to bring home is that persistent inflation combined with tightening financial conditions may eventually lead to a broader economic downturn if policy responses lag behind rising price pressures.
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