"The Era of the Fed is Over"

Hardy Jenns: I see no reason to carry this on any longer. It was a joke. It's gone to far. It's over, ok?
Keith Nelson: You want the truth? You want the plain truth? You're over.
--Some Kind of Wonderful

Hard to pass up a WSJ article when the title is "The Era of the Fed is Over. Prepare for a More Perilous Road Ahead." After all, the Fed is the hero of modern day markets.

The basic thesis is something these pages have noted for years. By employing increasingly aggressive monetary policy over time, the Fed has perhaps been able to forestall some recessions and end others before their time. The data clearly show fewer recessions as the Fed has become more active:

This so called 'success' comes at a cost, however. Interest rates have been declining over time, as the Fed can never return rates to previous levels without blowing up a system that has become more leveraged...due to the Fed's easy monetary policies. With rates near the 'zero bound,' the Fed has little traditional ammo left to combat another downturn.

Recognizing that it has created a monetary roach motel that it can never leave, the Fed is tinkering with new policies, including negative interest rate policies (NIRP) and outright monetization of financial assets.

The article stops short of discussing the irony. By employing ever more aggressive monetary policies to reduce the frequency of recession, the Fed may very well be setting us up for a single Mother of All Downturns when it inevitably loses control of interest rates, or prints up a hyperinflationary blizzard.