Diamond News

Market CrashCan the Fed cause a market crash?

In 2017 Fed Chair Janet Yellen reassured[1] us:

“Would I say there will never, ever be another financial crisis? …. That would be going too far but I do think we’re much safer and I hope that it will not be in our lifetimes and I don’t believe it will be.

…. The capital positions of the major banks are very much stronger….”

Current Fed Chair, Jerome Powell continues to reassure us[2]. Judy Woodruff asked whether the rosy current moment can last indefinitely.

“Indefinitely is a long time. Not every business cycle is going to last forever, but no reason to believe this cycle can’t go on for quite some time, effectively indefinitely.

We don’t see the kind of buildup in risks in the financial markets, let alone the banking system.”

“The Federal Reserve Bank Of San Francisco[3] says:

“…. A “neutral” monetary policy…is the…rate that neither stimulates (speeds up, like pushing down the gas pedal on a car) nor restrains (slows down, like hitting the brakes) economic growth.”

CNBC reports, “Powell says we’re ‘a long way’ from neutral on interest rates, indicating more hikes are coming[4]“:

“Interest rates are still accommodative, but we’re gradually moving to a place where they will be neutral,” he added. “We may go past neutral, but we’re a long way from neutral at this point, probably.” (All emphasis mine)

The Fed bailed out the banks and saved them trillions in interest. Rates were held down for over a decade.

If rates stay low for too long,...

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