Recently Ron Paul railed on the American economy, calling it fundamentally unsound. Instead of production, employment or a strong dollar driving growth, language in a press release is the catalyst. Specifically, it was the word “patient” in a release from the Federal Reserve.
“Based on its current assessment, the Committee judges that it can be patient in beginning to normalize the stance of monetary policy.”
It set markets afire – the Dow gained nearly 800 points in two days, with the S&P also jumping nearly 100 points.
I think this part of the release helped too:
“…it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time.” But the point is – how much money did that language generate? For most people, the economy isn’t so hot. Wall Street and Main Street are almost mutually exclusive institutions.
This Hurricane “Patient” situation identifies one thing clearly – the Fed has a lot of power if it can mutter a few sentences and send markets soaring. To me, it’s a symptom of imbalance.
And as Paul rightly says, the slightest mention of tightening monetary policy sees Wall Street act like “a heroin addict forced to sober up cold turkey.”
The Fed’s release and resulting market behavior indicates that the course remains for a while. Perhaps the record returns will keep going too.
But I tend to agree with Paul, the market corrections need to happen. If not, bad debt will keep getting worse, transforming what is a slight abrasion into a broken bone.