Written by William Kurtz
The Fed has elected to continue its asset-buying program "as is." There is no "tapering" in sight.
Some observers have expressed "surprise." Why should it have been a "surprise?" The surprisees must have been reading the wrong tea leaves.
Here's the way I see it at the moment:
My first impression is that the Fed is frightened. It is frightened because its program isn't working. If it had been working, the rate of inflation would have risen, and market interest rates would have remained at a low level. Neither one of those is happening: the rate of inflation has changed very little; and market interest rates are rising, which is beginning to have an adverse effect on house sales. It is exactly what the Fed did NOT want to happen.
Contrary to published comment that I've seen today, the Fed does not "control" market interest rates; the market does.
Some people believe that the Fed is omnipotent, which it is not.
Underneath it all is the specter of Deflation, which frightens the Fed more than anything else. Once Deflation starts, it's almost impossible to stop.
In a way, it's a "surprise" that the Fed did not announce an INCREASE its asset-buying program. The risk in so doing, though, is that it would have been an acknowledgment that the Fed's program has not worked, and that the economy is in worse shape than the Fed has publicly acknowledged. It would have scared investors away from the market. Furthermore, some elements of Congress would have been in an uproar.
So - the Fed was in a box: It could not "taper," because that would have set off a decline in the stock market; it could not increase its asset-buying program, because that might well have set off a decline in the stock market. The Feds were left with their only remaining option: make no change, and keep their fingers crossed.
Of course, the maintenance of a high stock market is not one of the stated mandates for the existence and continued operations of the Federal Reserve; but the Fed has made it so, without benefit of legislation - and the country supinely goes along with it.
There will come a time, Dorothy, when you'll finally become suspicious and will look behind the curtain, only to discover that the whole thing has been a fraud, and that there is a price to be paid for it.
Dr. Bernanke will come to rue the day his photo ever appeared on the cover page of "The New York Times Magazine."
In accordance with Paul Macrae Montgomery's celebrated "Magazine Cover Indicator," that's a sure-fire omen of bad things happening to one's reputation.