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According to Mohamed El-Erian, chief economic adviser of the German financial conglomerate Allianz, "pay attention to central banks that do not understand the markets". He argues that the US Federal Reserve still does not understand its own impact.
Yesterday, the Federal Reserve made some comments on the economic growth that caused chaos on the stock market. After new highs earlier in the day, at the close of daily markets, all these gains have evaporated. Once again, the Fed apparently did not understand how its comments are shifting the market.
The Federal Reserve has become known for "chatter" without real politics. The rumors of rate cuts are never dispelled and it seems that the Fed may be unaware of the speed with which gossip and information travel today.
Worse still, it seems that the Federal Reserve is not "aware" of the market as a whole. As evidenced by the non-declaration of the Fed – as it did yesterday – which has only increased investor discomfort.
The Federal Reserve does not understand the technical aspects of the market
Like Mohamed El-Erian MarketWatch said, the Federal Reserve is out of touch with market techniques. Without "feeling" for the market, his policy recommendations are much less effective.
Joel Kruger, strategist at LMAX Exchange, echoed these concerns, saying that the positive market sentiment was artificially reinforced by the Fed. The "hopium" has exploded the stock market on the rise in recent months, but many investors fear that the bottom will fall. Although the Fed is counting its lucky stars for the moment, it is unclear how long this good economic fortune could last.
An all-powerful dollar counter
Centralized banking has become increasingly politicized over the past decade, even a small statement has become an obsession for financial information. With so much speculation about our current media culture, should we really give so much influence to central banks? One could argue that a more stable base for monetary policy – a base with fixed limits – could easily solve the current limitations of the Federal Reserve.
A decentralized model, based on hard currency limits, would be better for the stability and growth of the market. Bitcoin (BTC), or another global cryptocurrency, could someday become a way to counter the mighty dollar and the tightening of the Federal Reserve. However, it may take another economic downturn for the authorities to understand the problems inherent in the day-to-day operations of the Fed.
Do you agree that the Federal Reserve does not understand the full extent of its responsibilities nowadays? Can centralized banking really explain the speed with which the economy is evolving? Let us know your thoughts below.
Images courtesy of Shutterstock.
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