How Institutional Investors Push Around The Fed

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The Federal Reserve likes to project the image of it is independence and discernment but it is increasingly regarded as under the sway of Wall Street. At least three times now, pressure from Wall Street seems to have swayed the Fed to reconsider it's judgments about the condition of the markets and the economy. The most recent took place during the course of November and early December, when the Federal Reserve moved from describing the US economy as balanced to the current view that everyone agrees will most likely result in a rate cut any minute now!
Now the Fed being influenced by Wall Street isn't necessarily a bad thing. There's a good case to be made that there are two many bureaucrats and academics at the Fed and not enough people with real-world experience in the markets or running companies.
But it does run counter to the image the Fed likes to present of stalwart independence. A story from Reuters out yesterday clearly indicates that many institutional investors don't buy this independence line anymore. They're convinced that they are able to push the Fed in the direction they desire. You have to read between the lines but we think the implication is pretty clear.
"The Fed initially saw this as a problem contained to financial markets but have changed their position. I think they're right on top of it," Mary Miller, director of fixed income at T. Rowe Price, tells Reuters.
And what happened in the intervening period? Thirteen firms that are part of the Securities Industry & Financial Markets Association, met with officials from the Fed, the Treasury and the White House in November.
Investors raised Fed awareness of credit crisis [Reuters]

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