Has The Federal Reserve Lost a Feel for the Market?

According to Mohamed El-Erian, Chief Economic Advisor of German Financial Conglomorate Allianz, “when central banks don’t understand the markets, watch out.” He makes the case that the US Federal Reserve still does not grasp its own impact. Yesterday, the Federal Reserve made some comments on the economy’s growth which caused chaos in the stock market. After fresh highs earlier in the day, by the close of daily trading, all of these gains had evaporated. The Fed, once again, apparently failed to understand how its comments move the market. The Federal Reserve has become notorious for ‘chatter’ without actual policy. Rumors about rate cuts are never dispelled and it seems that the Fed may even be unaware of how quickly gossip and information travel today. Even worse, the Federal Reserve seems to lack a ‘feel’ for the overall market. This is evidenced by the Fed giving non-statements — like it did yesterday — which did nothing but elevate investors’ unease.

The Federal Reserve Is Not Understanding Market Technicals

As Mohamed El-Erian told MarketWatch, the Federal Reserve is out of touch with the market technicals. Without a ‘feel’ for the market, its policy prescriptions are far less effective. Joel Kruger, a strategist at LMAX Exchange, echoed these same concerns by arguing that positive market sentiment was being artificially propped up by the Fed. The ‘hopium’ has caused the stock market to explode upwards in the past few months but many investors are scared the bottom might fall out. Although the Fed is counting its lucky stars at the moment, it’s unclear how long this stretch of economic good fortune may last.

A Counter to the Almighty Dollar

Centralized banking has become increasingly politicized in the past decade, with even a minor statement becoming an obsession for financial news. With so much speculation abound in our current fast-paced news media culture, should central banks really be given this much influence? Arguably, a more stable basis for monetary policy — one with fixed limits — could easily resolve the Federal Reserve’s current limitations. A decentralized model, based on hard currency limits, would be preferable for market stability and growth. Bitcoin (BTC), or another global cryptocurrency, may someday emerge as a counter to the almighty Dollar and the Federal Reserve’s tightening. However, it may take another economic recession for the powers that be to fully understand the inherent problems within the everyday functioning of the Fed. Do you agree that Federal Reserve is not understanding the full scope of its responsibilities in this day and age? Can centralized banking really account for how quickly the economy is moving? Let us know your thoughts below.