The Fed Believes It's Own Bullshit

The Federal Reserve looks at high stock prices and rising commodity prices and sees success. Officials do not see themselves as an engine of wealth inequality, as creating supply chain problems by igniting and enabling hoarding behavior, as distorting bond markets to the point where a financial catastrophe is always one policy meeting away. They do not see themselves as a force supportinng populist extremism.

If the Federal Reserve had half a brain, they would end QE entirely at this meeting. Shock the stock, bond and commodity markets. They would understand that upwards of a 40-percent correction would have little impact on the real economy, but that taking the wind out of commodity price increases would greatly ease supply chain problems. They would also threaten, with no intention of follow-thorugh, rate hikes as soon as the March meeting. If they did somthing like this, they would maintain their illusion of control. The Federal Reserve doesn't understand its power is an illusion though, anymore than Nicolae Ceaușescu understood his power was an illusion about to collapse.

Whether the Federal Reserve knows it or not, they are trying to thread a needle with their policy statement. On one side is almost instantaneous collapse in financial markets should the bond market take short-term rates higher. On the other side is an almost instantaneous melt-up in stocks and commodity prices, one that will take oil to $100 per barrel and ignite the next cycle of political extremism that will make Trump look like a moderate centrist, and will eventually spawn an even more complete finanical meltdown that will destroy one or two generations of retirees around the the globe.