The Fed “Is Complicit In Creating Fragilities In The System”
When the Fed cut interest rates this week, everyone had an opinion about it.
- The economy needs it to fend off recession.
- The economy has been hanging in well and they shouldn’t have rushed to spend dwindling monetary policy resources.
- They were responding to the stock market.
- They were helping keep the financial plumbing functioning.
- They were bold.
- They folded to criticism.
- More is needed immediately.
- Enough is enough for now.
- Their communication strategy was sloppy.
- They were willing to show flexibility in the face of evolving circumstances.
- They are scaring people.
- They are reassuring people.
The list is endless. As are the number of commentaries taking each side.
Who was right?
To a very real extent, they all were.
Sometimes, you just have to take action. And that is what they had at hand. Even if there will be both positive and negative consequences. But, if the rest of the government fails to demonstrate proper and immediate resolve to do its part in fighting the disease, it will all be for naught. They are buying time. But there isn’t a lot of it. Especially because, while fiscal policy would be a help, it remains to be seen if and when it can be expected to take its rightful place in manning the laboring oar.
It doesn’t mean the Fed can allow itself to be assumed to be at the complete mercy of the markets. Although, to be honest, they ultimately are.
They have been complicit in creating fragilities in the system through their encouragement of desperation investing that they bear a responsibility to be responsive to it. Perhaps at the moment, more than we thought or would like.
