This commentary originally appeared on Real Money Pro at 8:08 a.m. ET on Friday, Aug. 26. Click here to learn about this dynamic market information service for active traders.
The Fed has no cred. Federal Reserve policies have moved from beneficial in the early years of Quantitative Easing and reduced interest rates to ineffective over the past few years.
In fact, the Fed's policies have actually become harmful now, disadvantaging a growing "savers class" that's reducing expenditures, hoarding cash and perhaps even changing their savings behavior for years to come.
Stated simply, the central bank has become gripped by arrogance, believing in recent years that it can singlehandedly catalyze U.S. economic growth. (With the Bank of Japan's woeful policy of virtual "helicopter money" serving as a template.)
Former Fed Gov. Kevin Warsh this week penned a good Wall Street Journal column that opines how deeply flawed the central bank's strategy has become. Warsh gets it -- "Group Stink" and the Fed's reluctance to cede its newly found powers have poisoned U.S. monetary policy. I've been talking about this for some time, but it's one thing when I write about it and quite another when Warsh does.
As for Fed chair Janet Yellen's key Jackson Hole speech today, I don't expect anything market-shaking to come from it. Frankly, I think there's nothing left in the Fed's "toolbag" that we're not already aware of.
From my perch, the central bank has become largely ineffective and irrelevant now. Low interest rates and massive amounts of liquidity have "trickled up" rather than trickling down, and they merely benefit high-net-worth Americans who have large stock and real estate holdings.
However, I believe that the "Ah-Ha Moment" -- when markets lose confidence in central banks -- is virtually upon us now. This will reverse the higher stock valuations that we've seen since 2011.
Given all of the above, what do I think about Yellen's upcoming speech?
I think it'll be no biggie. Move on.