With the markets being dangerously addicted to its accommodative policies, the Fed (as well as the ECB and the BOJ) are back at injecting liquidity into the market. They have truly backed themselves into a corner, trying desperately to keep it all together, and to not let the global house of cards come tumbling down…

For the Fed, on the one hand, the need to normalize its policies is urgent, lest it has no tools left to fight the next recession, which is arguably already on the horizon. On the other hand, the slightest hint of higher interest rates or the removal of the artificial crutches that keep the markets standing is sure to trigger a tantrum that could easily escalate into a meltdown.

Financial markets are addicted to “cheap money”. The Fed understands this well. It knows that if it went back to a normalized monetary policy, it would crash the stock market. However, the Fed also knows that the current policy direction is not sustainable either. So, according to the latest report, the US central bankers appear to have switched to “tightening by stealth”.

,>> Read more here.