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Show Some Spine, Federal Reserve

By William Cohan, New York Times - August 31, 2015

THE financial markets and the Federal Reserve Board have been playing out a tragicomedy in three acts. Here’s how it works: Initially, a flurry of news stories appear about how, a few months hence, the Fed intends to raise short-term interest rates for the first time in years. Second, the predictable market swoon, as Wall Street traders ponder the fact that the morphine drip of free money that they have been enjoying since the aftermath of the 2008 financial crisis might be pulled out of their arms. Finally, the Fed backs away from its much-overdue policy change, causing traders to rejoice and the artificially stimulated bull market in both stocks and bonds to continue. The curtain comes down, and the audience roars its approval.

A similar drama occurred in the spring of 2013, during what has been called the Taper Tantrum. And now it’s happening again.

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