Why Divided Congress Will Likely Perk Up Inflationary Pressure: Gold Bull Peter Schiff Weighs In

Recent inflation data has raised hopes of the Federal Reserve slowing the pace of its rate hikes and pivoting subsequently. Results of the U.S. midterm election have poured cold water on this hope, according to economist Peter Schiff. 

What Happened: The Republicans have gained control of the House of Representatives and the Democrats retained Senate control, giving rise to worries of gridlock.

The real risk is, however, bipartisan compromise, Schiff, chief economist and global strategist at Europac, tweeted on Wednesday. As lawmakers compromise, Democrats can get their way with more spending and Republicans can clamor for tax cuts and succeed in implementing them.

See Also: Larry Summers Considers Debt Limit 'Much More Serious Risk' Amid Rising Interest Rates, Divided Congress

Schiff, a prominent gold bull and basher of cryptocurrencies, said this would increase budgetary deficits, and for financing the deficit, the Fed will create inflation.

This has increased the Fed’s balance sheet assets and correspondingly the excess reserve liabilities the banks hold with the central bank.

An undesirable consequence of the whole thing is the increase in inflation as with QE, money supply increases and credit terms loosen. As inflation became red hot, the Fed stopped its QE in March 2022 and began quantitative tightening in June.

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