I can’t for the life of me understand why investors believe a word coming out of the mouths of Federal Reserve officials, but they do. Then when one of those officials leaks the truth for a change they freak out. That’s what happened today.
A quiet day on Wall Street turned into the worst sell-off in three months after a Federal Reserve official said he doubted the bank’s effort to boost economic growth would work.
Charles Plosser, president of the Fed’s Philadelphia branch, told an audience Tuesday that the Fed’s effort to support the economy would likely fall short of its goals.
The speech probably startled some investors who had faith in the Fed’s latest plan, said Jack Ablin, chief investment officer Harris Private Bank. The plan includes buying $40 billion in mortgage bonds each month until the economy improves.
“So many investors have bought into the illusion,” he said. “And it was like Plosser pulled up the curtain on the Wizard of Oz.”
The Standard & Poor’s 500 index lost 15.30 points, its fourth straight decline, to close at 1,441.59. The 1.05 percent drop was the worst for the S&P since June 25. (Read More)
Eventually the bubble the Fed has been inflating is going to pop, and it’s going to be ugly. It’s maddening, had they left things alone things would have improved. Perhaps it would have taken a little while, but we all would have been better off in the long run. Now with this mortgage buying scheme they’re also re-inflating the housing bubble, so we’ll have that to deal with down the road, too.
No doubt Mr. Plosser will receive a stern talking-to and start repeating the lies approved by the powers-that-be.