The Fed, by maintaining their bond purchasing program, is completely ignoring the the possible negative impact on the economy that a sizable stock market correction will have. By continuing to buy bonds through their QE3 program, they are driving stocks to all-time highs, and to unsustainable valuations. In essence, they are creating a bubble in stocks that inevitably will burst, resulting in a massive shock to the economy. The longer they persist in pumping cash into the economy, the more violent the reaction will be when they remove the stimulus. Although they claim that they will gradually remove the stimulus, there is no guarantee that the stock market and economy will react in an equally gradual manner. The reality is that I have never seen a government manipulate their economy, currency, etc., to this degree without causing a serious shock to their economy. The fact that the Fed clearly does not recognize this risk is both shocking and frightening.
- Fed Completely Ignoring the Economic Influence of the Stock Market – Wednesday, September 18, 2013