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Market Unimpressed by QE4 & New Thresholds, Half-Life of Fed Action Is Now Zero


Federal Reserve chairman Ben Bernanke may be the man in the spotlight today, but for me, it's all about Paul Simon and his 1975 classic, Still Crazy After All These Years. What better way is there to sum up the state of perpetual interventionism that we have found ourselves in given that 2013 will mark the fourth year of sub-par recovery and the sixth year since the start of the financial crisis in 2007.

The central bank announced today that it embark on another round of Treasury purchases of $45 billion a month to replace the expiring Operation Twist program. This is in addition to the recently launched QE3 program that committed the Fed to buying $40 billion a month in mortgage-backed securities. For those keeping score at home, that's $85 billion per month of fresh demand in the government debt markets, which works out to $1 trillion a year.

While this move was in-line with market expectations, its desired effect so far has done little to inspire investors to buy stocks, which in turn is supposed to boost investor confidence and ultimately spur businesses to hire people. But as my co-host Jeff Macke and I debate in the attached video, it's not really about getting rates lower anymore, it's simply making sure that they don't go up under any circumstances and inhibit an already feeble economy.

Related: It's Time for the Fed to Just Go Away Says Wesbury

It is still very hard to argue that the knock-on effect of our experimental monetary policy is really working all that well. Even the Wall Street Journal was posing numerous questions today about whether all of this easing and stimulus will have undesirable effects, that it masks the severity of fiscal crisis many nations are facing due to artificially low interest rates, whether central banks can even solve structural economic problems this way, and finally, how it will ever end and the money spigot will be turned off.

There was an element of surprise in the announcement today in how the Fed has now adopted two tangible economic targets, 6.5% unemployment and 2.5% inflation, that will serve as thresholds for a change of course in their low rate policy. This is an improvement from the previous ''through mid-2015'' time-based target the Fed issued, but not one that marks a policy change or is going to make any real difference soon. So, until those targets are breached, it's full steam ahead, and still crazy for the Fed.