The Fed follows the market, and often has no effect on the market.
And nobody else than Christopher A. Sims, Nobel Prize in Econ 2011
winner says this (explicitly), in his work, which you can get a sample
of online. Sims found a lag between Fed action and an economy’s
response, with two key points: often the action and response were
uncorrelated (had no effect), and the Fed *reacted* to the market in
setting rates. BTW Sims is NOT a ‘real business cycle’ advocate, so you
cannot say he is blinded by this framework. Source: sims.princeton.edu/yftp/bpea/bpeaf.pdf
– Leeper, Sims, and Zha (1996). “2 Another robust conclusion, common
across these models, is that a large fraction of the variation in
monetary policy instruments is attributable to systematic ***reaction***
by policy authorities to the state of the economy. This is of course
what we would expect of good monetary policy, but it is also the reason
why using the historical behavior of aggregate time series to uncover
the effects of monetary policy is difficult. The size of effects
attributed to shifts in monetary policy varies across specifications of
economic behavior. We show, though, that most of the specifications
imply that ***only a modest*** portion (or in some cases, ***essentially
none***) of the variance of output or prices in the US since 1960 is
attributable to shifts in monetary policy. Furthermore, we point out
substantive problems in the models that imply large real effects, and
argue that correcting these problems lowers the implied size of the real
effects.”
