Schiff warned that investors are underestimating the risks created by persistent inflation and a Federal Reserve caught between fighting prices and protecting the financial system.
- Schiff sees particular risks in housing, where millions of mortgages originated when rates were far below today’s levels.
- The economist warned that mortgage rates could eventually climb toward 9%, putting further pressure on housing affordability and potentially forcing home prices significantly lower.
- Schiff added that higher rates and falling property values could create losses across the financial system, particularly if borrowers begin defaulting.
Economist Peter Schiff is sounding the alarm over rising inflation, higher interest rates and growing financial stress, warning that the U.S. economy could be heading toward a much bigger crisis.
During a recent episode of his podcast, Schiff argued that investors are underestimating the risks created by persistent inflation and a Federal Reserve caught between fighting prices and protecting the financial system.
Housing And Banks Could Be The Next Breaking Point, Warns Schiff
Schiff’s biggest concern is what happens if interest rates continue rising in an economy that has become heavily dependent on cheap credit. He sees particular risks in housing, where millions of mortgages originated when rates were far below today’s levels.
“We’re actually even closer now to an even bigger crisis,” Schiff said.
He warned that mortgage rates could eventually climb toward 9%, putting further pressure on housing affordability and potentially forcing home prices significantly lower. Higher rates and falling property values could create losses across the financial system, particularly if borrowers begin defaulting.
Schiff believes the resulting downturn could ultimately be worse than the 2008 financial crisis.
Gold The ‘Last Safe Haven Standing’, Says Schiff
Schiff sees gold as one of the few assets that can protect investors if inflation remains elevated while confidence in government debt deteriorates.
“Gold is the last safe haven standing,” Schiff said, while arguing that higher Treasury yields are not necessarily bearish for gold. If yields rise because investors demand greater compensation for inflation and fiscal risk, the move can instead reinforce the case for precious metals.
Schiff believes that investors should focus less on nominal interest rates and more on real purchasing power. If inflation rises faster than bond yields, holders of fixed-income assets can still lose money in inflation-adjusted terms.
“That’s why you buy gold. Gold is the only hedge against treasuries and bonds and gilts and all these other sovereign debt instruments,” he added.
Schiff Warns Inflation Could Hit 7% In 2027
Schiff’s most aggressive warning concerns inflation, where he argued that recent price data could be the beginning of a much larger acceleration rather than a temporary bump.
September’s CPI rose 0.6% from the prior month, putting the annual rate at 3.7%. But Schiff believes inflation could accelerate substantially from here, potentially reaching 7% or higher in 2027 and remaining elevated into 2028.
This, Schiff believes, would put the Fed in an increasingly difficult position. Raising rates aggressively could trigger the housing and financial crisis Schiff fears, while failing to raise rates could allow inflation to become even more entrenched.
He also warned that markets may be preparing for the wrong problem. Investors are focused on whether the Fed will cut or hike rates, Schiff says, while the bigger risk could be a combination of higher inflation, higher borrowing costs and financial instability.
If that scenario unfolds, Schiff believes the fallout could be far larger than markets currently anticipate.
During the after-hours session on Friday, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, declined 0.26; the Invesco QQQ Trust ETF (QQQ) edged lower by 0.27%; and the SPDR Dow Jones Industrial Average ETF Trust (DIA) fell 0.21%. Retail sentiment on Stocktwits toward the S&P 500 ETF was in the ‘bearish’ territory at the time of writing.
The iShares 20+ Year Treasury Bond ETF (TLT) gained 0.1% on Friday, while the iShares 7-10 Year Treasury Bond ETF (IEF) rose 0.08%.
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