« AP: Real Estate Market a Gamble | Main | Teva and Ivax to Get Hitched »

Here’s a dirty little secret about Wall Street. The Federal Reserve isn’t nearly as powerful as most people think. There, I've said it. I now expect Federal agents to bang down my door any second. Jack-booted goons will rip my keyboard from my cold dead hands. (First, they came for the bloggers....). I'm sorry, but it’s true. The Fed ain't that big a deal.

The real power is in the hands of the currency and bond markets. Don't piss them off. They own the place. They rest of us just pay rent. The Federal Reserve is simply another bank trying to make a profit. If you understand that, you understand the Fed. Outside that, they give speeches. That's it.

I often hear people say that the Fed created the tech bubble, or the housing bubble. No, wait--it burst the tech bubble. It's actually kinda hard to keep up with these theories, but they always rely on two crucial facts. The Federal Reserve is incredibly evil and incredibly efficient. I doubt the former, and I'm pretty convinced against the latter.

In reality, the markets created those bubbles. By their nature, markets are composed of countless variables, all acting on each other at once. No one “controls” the market, especially not a committee.

At the June Fed meeting, the central bank said that it won’t use interest rates to try and slow down the housing market. That’s good to hear, but it really won’t make a big difference anyway. Of course, I’d be much happier when the Fed tells us that it won’t use interest rates to control interest rates. Now that'd be progress!

Posted by edelfenbein at July 24, 2005 10:10 PM