The Fed has it Backwards, Part III of 2022 Outlook
To me the Fed has it backwards. If they believed in markets, they would leave Fed Fund rates alone and go to the source of the inflation problem, Fed Balance sheet and excess liquidity, cut out 2 Trillion, let short term interest rates seek a market rate.
There is probably a reason why they didn’t do that, it would stop the flattening of the yield curve, actually fight inflation, but it might take the S&P back to true value in 2700 area. Instead, now we still have all this liquidity sloshing around looking for a game, they just have to pay a little more to play. You have seen anything yet in terms of volatility.
Part III of 2022 Outlook – FED Balance Sheet Influence on Nasdaq 100 Stocks
First here is a piece on the effect of the FED Balance sheet on the economy by one of my favorite economists, John Hussman.
Next, here is one chart from the work we did to illustrate the effect of the Fed Balance sheet on the hot stock market sector, NASDAQ 100, since the start of QE2 in 2011. The chart index is based at January 1, 2005, the time before the cheap money housing boom led to the 2008 Crash.