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The following is an excerpt from a recent weekly market comment featured in The Felder Report PREMIUM[1].

“Somehow we need to go to an economy that is using its resources, operating at full employment, but doing so in a way that isn’t reliant on bubbles.” –Janet Yellen

This quote, uttered before she became Fed chair, is worth studying for at least a couple of reasons. First, because it demonstrates just how easy it is to see the problem from a distance and also how difficult it becomes to address once you become deeply involved with it. And second, because it underscores the limitations of monetary policy and the fact that central bankers, even though they are cognizant of these limitations, continue to try to defy them.

As my friend Dr. John Hussman adroitly discussed last week, “Extraordinary monetary policy has one function, and it is to amplify yield-seeking speculation when investors are inclined to speculate. That and that alone, is how quantitative easing has impacted the economy in recent years.”

'Extraordinary monetary policy has one function, and it is to amplify yield-seeking speculation when investors are inclined to speculate. That and that alone, is how quantitative easing has impacted the economy in recent years.' –@hussmanjp https://t.co/ygTi3QudiB pic.twitter.com/B9vC5uBz9K[2][3][4]

— Jesse Felder (@jessefelder) April 8, 2019[5]

The Fed influences the financial markets by controlling short-term interest rates, via the Fed Funds rate, and the supply of risk-free securities, via Quantitative Easing. When they took the former to zero for the better part of a decade it inspired investors to reach for yield they could no longer get from a savings account or something similar....

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