Renowned economist and vocal Bitcoin BTC/USD critic Peter Schiff has denounced the July Consumer Price Index as a “fraud” and has made a bold prediction about the potential consequences of a September Federal Reserve rate cut.
What Happened: Schiff took to X to express his skepticism about the CPI, which rose by 2.9% year-over-year in July. He attributed this modest increase to a significant drop in used car prices, which fell by nearly 11%.
Schiff questioned the accuracy of the CPI, arguing that it fails to reflect the rising costs of essential expenses such as auto insurance, which increased by 18.6%.
“The main reason July YoY #CPI only rose by 2.9% was that used car prices dropped nearly 11%. How many used cars does the typical American buy each month? Yet, auto insurance prices rose 18.6%, a bill that all motorists pay monthly. This is just one reason why the CPI is a fraud,” Schiff wrote.
Despite the CPI data suggesting that a rate cut is unwarranted, Schiff believes that the Fed will proceed with a rate cut in September. He warned that the market, which has already factored in a September rate cut, will crash if the Fed fails to deliver.
“A Sept. cut is already priced into the #StockMarket. If the Fed doesn’t deliver the market will crash,” Schiff wrote.
See Also: Producer Prices Slow More Than Expected In July, Bolster Fed Rate Cut Wagers
Why It Matters: The July CPI report, released on Tuesday, showed a 2.9% increase in the overall cost of goods and services over the past year, slightly below the expected 3%. This marks the fourth consecutive decline in the annual inflation rate and the smallest increase since March 2021.
The Core CPI, which excludes food and energy, was up 3.2% vs last year and up 0.2% from last month. Both of those were consistent with expectations. The annual number is still well above the Fed's 2.0% target although there is a clear trend in recent months toward disinflation.
Before the release of the July inflation data, traders had assigned equal odds for a 50-basis-point or a smaller 25-basis-point rate cut by the Fed in September.
Meanwhile, Mohamed El-Erian, the Chief Economic Advisor at Allianz, criticized the Fed for not reducing interest rates in July, warning that the market's anticipation of a 200 basis point cut in the next year is excessive.
Additionally, the Home Depot Inc. CEO highlighted that inflation continues to erode disposable income, causing homeowners to delay renovations. This consumer behavior aligns with the broader economic trend of cautious spending amid high inflation and interest rates.
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This story was generated using Benzinga Neuro and edited by Kaustubh Bagalkote
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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