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Via SchiffGold.com,

The latest buzzword in the mainstream financial media is “soft landing.” Everybody seems convinced the Fed has beaten inflation, and that it has completely avoided pushing the economy into a recession. According to the mainstream narrative, we may see a bit of an economic slowdown in the months ahead, but a recession is pretty much off the table. In his podcast, Peter Schiff explains why a soft landing is impossible.

Wall Street is booming with the growing belief that the inflation war is over, and not only is the Federal Reserve finished hiking interest rates, but it will begin to cut them in 2024.

Another factor driving market optimism is the idea that the economy will avoid a recession and we will enjoy a “soft landing.” It’s a Goldilocks scenario that features rate cuts in the absence of any kind of major economic downturn.

This raises a question: Why would the Federal Reserve start cutting rates and loosening monetary policy absent a significant economic downturn?

Peter speculated that with a lot of economic data weakening, the markets anticipate that the Fed will proactively cut rates to preempt a recession and prevent a crash landing.

The thinking is as soon as it sees the economy coming in for a landing, it’s going to cut rates to ensure that landing is soft.

Peter called this “wishful thinking” at best. In fact, he said he expects a hard landing no matter what the Federal Reserve does. But if the central bank doesn’t try to preemptively cut rates, it will be an even harder “hard landing.”

Peter said that it’s difficult to understand why people think the Fed can raise rates from 0 to over 5% and get away without plunging the economy into a recession.

History makes it clear that the Federal Reserve has a hard time normalizing rates. In fact, the attempt to bring rates from around 1% to just over 5% in 2007 led to the greatest recession since the Great Depression.

When rates are pushed lower than they otherwise would be by artificial means, people act irrationally. The decisions seem rational, but they are based on misconceptions. This drives people to make economic calculations that are not supported by the fundamentals.

Absent monetary central planners, interest rates would naturally fall if people saved money and put off purchases. In that world, economic decisions would be supported by naturally low interest rates. But we don’t live in that world. Americans want to buy now and pay later. We don’t have an economy naturally disposed to low interest rates. That means when the central bank forces rates down, it creates all kinds of problems.

In the early 2000s, artificially low rates drove a lot of mistakes in the real estate market. When that period came to an end, everything collapsed. As the Fed tried to normalize rates, the markets came in and tried to correct all of the imbalances that built up over the years of artificially low rates.

Add quantitative easing on top of that — three rounds before COVID and the mother of all rounds after COVID. Today, on top of rate hikes, the central bank is shrinking its balance sheet and pulling liquidity out of the financial system. That didn’t happen in the period leading up to the ’08 financial crisis.

Despite this, most people believe were are not going to have a recession at all.