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Wall Street Has Taken Control Of The Fed

Remember a year or so ago when Ron Paul and his buddies were regularly being described as threats to the "independence" of the Federal Reserve?

The Federal Reserve headquarters in Washington, DC.
The Federal Reserve headquarters in Washington, DC.

How quaint.

As CNBC's Jeff Cox writes, Wall Street pretty much has the Fed on the hook for a second round of quantitative easing. Refusing to launch QE2 would be such an extreme blow to the markets that it seems unlikely the Fed would risk it.

From Cox:

While the Fed has not openly acknowledged that it is ready to enact any new measures, the market is expecting it. Those expectations, will form the impetus for the Fed to start buying assets—probably Treasurys—as part of a program known as quantitative easing, experts say.

"The Fed has become less independent than the law permits," says noted Fed historian Allan Meltzer of Carnegie Mellon's Tepper School of Business in Pittsburgh. "The administration has...run out its string of fiscal expansion so it presses the Fed to do what it's doing. The Fed is doing what the Treasury wants."

Despite its obligation not to swayed by politics, the Fed instead has become a tool for the markets and Washington to get their way, says Meltzer, who testified before Congress in September and implored the lawmakers to institute a three-year moratorium on new business regulations. » Read more at CNBC.com