Wednesday, July 30, 2014

Falling Fed Confidence

Welcome to the grand illusion
Come on in and see what's happening
--Styx

Not a bad synopsis of what faces the Fed from a public confidence standpoint. After six years of unprecedented money printing, the Fed must withdraw the stimulus to maintain credibility. The longer the Fed waits to do so, the lower the public confidence that the Fed knows what it is doing and that Fed policies have improved things.

If the Fed does withdraw the stimulus, then financial markets will plummet. The Fed must either let that happen--at which point confidence in the Fed will decline. Or the Fed will have to reinject the stimulus--at which point public confidence that the Fed knows what it is doing will also decline.

Welcome to the corner that the Fed has painted itself into. When public confidence in the Fed declines, the charade is over.

1 comment:

dgeorge12358 said...

The world loves to be deceived.
~Sebastian Franck