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Yet Another Theory of the Fed (Or Why a “Major Policy Shift” Looms)

from Zero Hedge

Authored by Daniel Nevins via FFWiley.com,

The world hardly needs another theory of the Fed, especially so soon after its Jackson Hole symposium. But we have a theory, too, and who knows, ours could be as close to the bulls-eye as any of the others. Plus, our theory is easy to explain – it rests on the simple premise that decision makers worry mostly about their reputations. We’ll propose that reputational risks are the primary drivers of central bank policies, and then we’ll use that belief to predict a major policy shift.

Why are reputations so important? Cynics might say they determine how much central bankers get paid once they leave the FOMC. Ben Bernanke, for example, wouldn’t collect $250,000 speaking fees and plush consulting contracts if he hadn’t bolstered his reputation during the Global Financial Crisis. And that’s not all—the crisis also lifted Bernanke’s power and importance beyond what it would have otherwise been. By landing in the Fed chair at an opportune time, he profited immensely.

Continue Reading at ZeroHedge.com…

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