I noted last week in interviews on several shows that I think the new Fed policy of waiting until unemployment falls to 6.5% is going to be the Fed’s Vietnam-like quagmire. While it may be a reasonable current objective, it should not be cast as policy. I know they added caveats about inflation, etc., but the markets are not paying attention to that. Inflation will have to be well and truly established now before rates will rise, if unemployment is not under 6.5%. They have imposed on themselves a stricture that will be difficult to unwind without far more serious disruptions in the market than they presently think to avoid. By attempting to avoid volatility and provide certainty, they have merely given us an almost certain future of outsized volatility. Everything must work perfectly if that is not to happen. And given that the Fed does not have a willing partner in Washington, DC, either in Congress or in the White House, in the pursuit of such perfection, they are storing up a future Minsky Moment of significance.

With that in mind, you should read this latest piece from John Hussman, talking about the consequences of current Fed policy.