“Everyone has a plan until they get punched in the mouth” Former World Heavy Weight Champion Mike Tyson
Dallas Fed President Richard Fisher, an outspoken critic of quantitative easing (QE), said today that the Federal Reserve is focused on how the “real” economy is doing and not just the stock market and would not allow the recent stock market decline to influence his vote to continue the Fed’s plan to taper QE.
We applaud Mr. Fisher’s aversion to QE and appreciate his comments warning about inflation and how the Fed is debasing the dollar. We particularly enjoyed his comment: “We cannot live in fear that gee whiz, the market is going to be unhappy that we are not giving them more monetary cocaine.”
We take issue, however, with Mr. Fisher’s contention that the Fed is focused not on the stock market, but the real economy. The Fed’s policies, by design have helped lift the stock and real estate markets but have not helped the overall economy. Indeed, the stock market has out performed the overall economy by a wide margin. We have argued that a rising stock market has been the basis for the economic “recovery’ and that if the stock market takes a dive it will take the real estate market and the entire economy with it.
Mr. Fisher, a fiscal hawk, becomes a voting member of the Federal Open Market Committee of the Federal Reserve Board in the current session. Ms. Janet Yellen, an ultra fiscal dove, becomes Chairwoman of the Federal Reserve at the same time. Ms. Yellen, a proponent of QE is also on record for favoring negative interest rates. Ms. Yellen, however, has been in favor of tapering QE believing that the economy is improving and the program can be wound down.
A few more down trading days coupled with negative employment reports and Ms. Yellen may reverse course and pull that magic ring out of her pocket and hit print.
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