Peter Schiff: The Fed Did Not Trigger a Recession Because It Surrendered When Banks Began to Fail
Peter Schiff stated that Powell boasts about the Fed winning the inflation war and not triggering a recession, but the real reason is that the Fed had surrendered when banks began to fail. Schiff pointed out that inflation never truly disappeared; it simply slowed down before the next wave of increases. After the failures of Silicon Valley Bank and Signature Bank in 2023, the Fed paused interest rate hikes and shifted focus to stabilizing the banking sector. Funds shifted from anti-inflation policies to financial stability, benefiting bank stocks and causing bond yields to decline. Traditional macro trading strategies faced pressure, and the narrative of "Fed put options" was repriced. By July 2026, the U.S. inflation rate is expected to be around 3.5%, above the Fed's 2% target, but economists note that the current inflation stems from supply shocks (Iran war, tariffs), not overheating demand.
Source: Public Information
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Historical Behavior
Peter Schiff, a long-time advocate of "gold bulls" and "dollar bears," predicted "dollar collapse and hyperinflation" multiple times in the 2010s, but the U.S. stock market rose 400% from 2010 to 2020, rendering his predictions incorrect. In 2021, he correctly predicted the error of the "transitory inflation" narrative, and the inflation rate reached 9.1% in 2022, validating his judgment. However, his 2023 prediction that "the Fed's aggressive rate hikes will trigger a deep recession" is again proven wrong, as U.S. GDP is still expected to grow by 2-3% in 2024-2026. His historical behavior reflects a pattern of "correct direction, wrong timing."
Capital Path
The Fed's policy path is clear: from March 2022 to February 2023, it raised rates by 450 basis points (from 0% to 4.75%), paused rate hikes after the collapse of Silicon Valley Bank in March 2023, and made the last rate hike of 25 basis points to 5% in July 2023. It is expected to maintain 5% from 2024 to 2026, with inflation dropping from 9.1% to 3.5%, but not reaching the 2% target. Funds have shifted from "anti-inflation priority" to "financial stability priority," with the Fed launching the BTFP (Bank Term Funding Program) in March 2023, providing banks with 12-month loans, accepting Treasury bonds and MBS at face value as collateral (instead of market value). This is essentially "Quantitative Easing 2.0," but nominally referred to as "liquidity support."
Analogy + Industry Position
Similar cases include the Fed maintaining zero interest rates from 2008 to 2015 after the 2008 financial crisis, raising rates to 2.5% from 2015 to 2018, cutting rates due to the "repo market crisis" in 2019, and returning to zero rates during the pandemic in 2020. The current cycle is similar—raising rates from 2022 to 2023, pausing after the banking crisis in 2023, and maintaining high rates without further hikes from 2024 to 2026. The industry position is in a "stagflation concern period"—compared to the "transitory inflation" narrative in 2022 and the "inevitable recession" narrative in 2023, the market consensus in 2026 is expected to be "moderate growth + stubborn inflation" (2% growth, 3-4% inflation).
Structural Judgment
This essentially reflects a conflict of policy objectives caused by regulatory changes. The Fed's dual mandate is "price stability + full employment," but after the banking crisis in 2023, a new goal of "financial stability" was added. This explains why Schiff claims the "Fed has surrendered"—when inflation (3.5%) conflicts with financial stability (bank capital adequacy), the Fed chooses the latter. This has led to a "decline in policy credibility"—the market no longer believes in the Fed's 2% inflation target, and long-term inflation expectations have risen from 2% to 3-4%. When policy objectives diversify, the priority of a single objective (inflation) declines. This explains why gold is expected to rise 40% by 2026 (from $2000 to $2800 per ounce)—investors hedge against the risk of "decline in policy credibility."
ABAB News · Cognitive Laws
The central bank's surrender is not a failure, but a shift in objectives.
Financial stability takes precedence over price stability as the norm.
A decline in policy credibility is an invisible driver of stagflation.