Federal Reserve Bank of America also known as the FED has been blamed for creating market bubbles in the past with its monetary policy and then doing nothing to deflate that bubble. Recent example is that of the financial crisis of 2008-2009. Stock market crashed and the whole banking sector was put on the line. The solution Quantitative Easing also known as QE. FED pumped a lot of money in the system with its QE. With interest rates very low and the US economy again heating up, analysts are fearing inflation raising its head again. Solution? Increase the interest rates. This is what the market has been expecting from the last six months. But FED is too cautious to increase interest rates right now. As a student of economics, we know there is always a time lag when it comes to controlling an economy. FED is still not clear what to do right now.
The Fed, of course, has absolved itself of any blame in setting up the U.S. and the global economy for the Great Crisis. It was not monetary policy’s fault, argued both former Fed Chairmen Alan Greenspan and Ben Bernanke; if anything, they insisted, a lack of regulatory oversight was the culprit.
So watch out another market bubble maybe in the making. As a trader and an investor, you should always keep an eye on the market fundamentals. Central banks play a prominent role when it comes to driving the market fundamentals. The actions that the Central banks take drive the market fundamentals. Now whatever FED has been doing in the last few yeas with its QE program is being copied by the European Central Bank and the Bank of Japan. So you can expect too much liquidity in the global financial system with very low interest rates which can only result in a massive financial bubble.