The More The Fed Fiddles… Professional Edition

The Case Shiller Index of US housing prices for November has essentially turned flat over the past two readings. As usual, it is understating the real weakness in the market. Meanwhile the Fed announced that it will tinker with how it sets interest rates. Recent history has shown, the more the Fed tinkers, the worse the unanticipated, unintended consequences are. Bernanke is the Dr. Frankenstein of high finance. He just can’t resist experimentation. We end up with a monster.

The decline in tax receipts in January is accelerating. Meanwhile economists are basing all their forecasts on the idea that a recovery has begun. The Fed seems to buy into that notion, and it will probably reiterate that in tomorrow’s statement. Whatever they say, however, the market is likely to respond positively. Bennie has set up the props and greased the skids for the absorption of the big wad of Treasuries settling on Monday. He may be a raving lunatic, but as long as one of his grand experiments isn’t going haywire at that moment, he can still manipulate the market in the direction he wants from time to time.

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Tags: Case Shiller Index, Decline, Dr Frankenstein, Economists, Fiddles, High Finance, Interest Rates, Monster, Notion, Professional Edition, Recent History, Tax Receipts, Tinkers, Unintended Consequences

This entry was posted on January 26, 2010 at 4:49 pm and is filed under Money and The Fed, Professional Edition. You can follow any responses to this entry through the RSS 2.0 feed.