What's Wrong With This Picture?

This is your Federal Reserve on drugs...

 

 

The Fed realizes investors do not act rationally... blowing up their models entirely...

“In a world of rational expectations, asset prices adjust and that’s it,” Mr. Williams said. ” He added, “but if one allows for limited information, the resulting bull market may cause investors to get ‘carried away’ over time and confuse what is a one-time, perhaps transitory, shift in fundamentals for a new paradigm of rising asset prices.”

 

Mr. Williams explained that it appears to be the case that investors, on balance, look at where a given market has been heading and assume that pattern will persist. Rapidly rising markets fuel the belief the good times are here to stay, while market blowouts generate such pessimism that investors cease to act as if prices will rise again.

 

“The recognition that people behave in this way can move us a long way closer to understanding how asset price booms and busts can emerge and how policy actions could influence that process,” he said.

In summary... It's entirely circular...

The Fed must blow bubbles because otherwise irrational investors get "carried away" and inevitably crash the markets...

 

Ultimately it seems clearer and clearer that, as Williams himself opines "financial stability is just as important as pursuing price stability and growth."

Ultimately it is clear that The Fed wants supreme control to protect us all from irrational investors..."ourselves"

Source: @Not_Jim_Cramer

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