So now we find ourselves in the familiar position of advocating for an end to quantitative easing while still believing that the Fed may not follow through with its plan to end QE by the end of the year. Why? Because the Fed's preferred gauges of inflation suggest that inflation remains too low. Sure, there has been some scattered evidence of modest inflationary pressures. There was an article in the May 4th edition of The Wall Street Journal ("Wage Pressure Begins to Build," by Theo Francis) that talks about isolated cases of wage increases by specific companies operating in specific industries. But does anyone really think wage inflation is going to get out of control with the labor-participation rate at its lowest level in decades? If the price of labor goes up, the supply will quickly go up too as workers re-enter the labor force. These new entrants will keep a ceiling on wage increases.
Read MorePlosser: Fed needs clear policymaking rules
Our worry is that, notwithstanding the massive increase in stock prices over the past five years, a large contingent of individual investors have become extremely distrustful of the stock market. This lack of confidence is related to a belief that the game is rigged. In my most recent book, "Restoring Our American Dream," I argue that it is imperative that we reconnect culpability and consequence. We have to ensure that the average investor has faith that the cards are not stacked against him or her. To this end, we applaud Attorney General Eric Holder for his ongoing prosecution of those responsible for misleading investors prior to the financial crisis. However, the work doesn't end there. We also must get off this incessant treadmill of inflating asset prices as a way to stimulate economic growth. These successive booms and busts do not project the market stability that individual investors so desperately seek.
The Fed's unwillingness to extricate itself from the markets is a very worrisome trend that has had devastating outcomes in the not-too-distant past. Effectively, the central bank is attempting to induce inflation in the broader economy by boosting asset prices by tens of trillions of dollars. Nothing very positive can come out of this experiment. The best case is that baby boomers, wary of the stock market, will have to accept much smaller returns going forward if and when they begin to embrace stocks again. The worst case scenario is that another bubble will burst. Either way, we don't believe the Fed's continued meddling will end well.