Has The Fed Lost All Control?

Written by Lance Roberts | Tuesday, September 24, 2013
The stock decline this week has not only rescinded all the gains from the “no-taper” rally, it pushed the S&P 500 below 1704, which was the level before the Fed issued its market-baffling no taper edict.  My friend Bill Kingdid an excellent job of compiling a series of articles which goes to demonstrate that the Fed itself may be just as confused as to what they should be doing as the market is trying to interpret their “Fed Speak.”

Economy Not Strong Enough For Fed To Taper

“The economy still needs the support of a very accommodative monetary policy,” Federal Reserve Bank of New York President William Dudley said in speech…

For the Fed to cut the pace of bond buying, which he stressed was not a prelude to raising short-term rates, it would need to see real gains in labor markets…he said the rise in borrowing costs that has happened over the past few months is a real impediment to growth. Also holding back growth, Mr. Dudley said, is a “unusually high degree” of drag stemming from the government’s fiscal policies. Tax and spending policies are making it just that much harder for the economy to grow, he said…

Dudley said the Fed might wait a long time after the unemployment threshold is breached before the Fed begins to raise its federal funds rate target…Dudley lamented that it is “disturbing’ that US income and wealth has become extremely skewed – even though it is the Fed’s easy credit schemes that caused the skewing. This is like Al Capone lamenting alcoholism!

Fed’s Lockhart:’A Way To Go’ Before Max Emp Objective Achieved

Despite the progress that has been realized in lowering the unemployment rate from its peak levels, “there’s a way to go before the Fed can claim that the maximum employment objective has been achieved,” Atlanta Federal Reserve President Dennis Lockhart said Monday.

Lockhart also noted…”the unemployment rate does not fully capture the true underutilization of labor resources today in our economy.”…

Stocks rallied in the afternoon on Lockhart’s no taper in October comment.

Fed’s Lockhart: Hard to See Hitting Conditions for October Taper

“In the short time between now and the October meeting, I don’t think there will be an accumulation of enough evidence to dramatically change the picture” about where the economy now stands, Mr. Lockhart said…

Dallas Fed President Richard Fisher on Monday said the Fed’s decision to not taper undermined its credibility. Fisher said he tried to persuade the Fed to taper.

Fisher’s speech: Five Years After Lehman, We Still Have a Big Problem

I believe that the megabanks are inherently handicapped by their size and scale…Extreme size and complexity have proven to be the enemy of prudence and the source of costly mistakes. Mathematically based risk-management models, while theoretically comforting, have their deficiencies. We learned during the recent crisis just how perilous those deficiencies can be…

Today, I will simply say that I disagreed with the decision of the committee and argued against it. Here is a direct quote from the summation of my intervention at the table during the policy “go round” when Chairman [Ben] Bernanke called on me to speak on whether or not to taper: “Doing nothing at this meeting would increase uncertainty about the future conduct of policy and call the credibility of our communications into question.” I believe that is exactly what has occurred, though I take no pleasure in saying so.   

Reuters’ Jamie McGeever: Stephen Jen pulls no punches: Last week was a “fiasco” for Fed “bordering on the arrogant” and “long on book smarts, short on street smarts” [Academics gone wild]

Read the full story at STA Wealth Management