You knew the Fed had to do something or the talking heads on TV would have nothing to talk about. And a Talking Head with nothing to Talk About is a scary thing, indeed. You get Megyn Kelly arguing about whether Santa Claus is really a chubby white guy even though he came from Turkey.
But here was the fear. If the Fed starts tapering, Markets could take that as a Bad Signal. Of course, no one knew what the bad signal would be.
Would it be a signal that the Fed finally realized its multi-trillion dollar balance sheet would generate Zimbabwean hyperinflation, as all the goldbugs tell us?
Or would it be a signal that the Fed was going to hike interest rates and kill the incipient recovery?
You see, the Fed had reached what J.M. Keynes would call the “Nth Degree”, where “we devote our intellegences to anticipating what average opionion expects the average opinion to be. And there are some, I believe, who pratise the fourth, fifth and higher degrees”…. We reached the Nth Degree about 3 years ago.
The Fed actually promoted this nonsense, as it turned policy-making into managing the beliefs of Expectations Fairies. All monetary policy is now about trying to outguess what markets think the Fairies are thinking.
There really is no proactive monetary policy. It is all about trying to manage the Fairies and then doing what the Fairies want the Fed to do.ROFL
Economonitor — Great Leap Forward