Friday, February 7, 2014

The Fed’s Focus on the “Wealth Effect” Is Idiotic

Washington’s Blog
February 7, 2014

We’ve repeatedly noted that the Fed’s main strategy has been to artificially blow bubbles in asset prices.
Image: Federal Reserve (Wikimedia Commons).

And we’ve repeatedly pointed out that one of the Fed’s main goals is to boost the stock market, yet the great majority of Americans – the bottom 90% – own less than 20% of all stocks and mutual funds. So the Fed’s effort overwhelmingly benefits the wealthiest Americans, and doesn’t help the general economy.
Barry Ritholtz has a great post at Bloomberg about the Fed’s idiocy of the Fed’s focus on the “wealth effect”:

When will these guys ever learn that maybe, just maybe, these Fed policies aimed at targeting asset prices at levels above their intrinsic values is probably not in the best interests of the nation?

-Dave Rosenberg, chief economist and strategist at Gluskin, Sheff


[What bugged me most about Fed policy] is the Federal Open Market Committee’s focus on the so-called wealth effect, and its corollary impact, the stock market’s reaction to Fed policy.

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