Who or what is the ‘market’?

This blog post in Real Time Economics says that in the tussle between the Federal Reserve and the Market, the Market won big. The post refers to the Federal Reserve revising down its expectations for policy interest rates in the coming years. It sets the policy rate! It is quite possible that keeping expectations of how far it would go to normalise interest rates high was, for the Federal Reserve, a form of escapism from the current abnormal monetary conditions, it is maintaining. It is similar to the resolutions that we all make: “I will get up early from tomorrow and exercise (Let me go back to sleep today)”.

Once the ‘tomorrow’ drew closer to ‘today’, the Federal Reserve blinked. So, we all know where the resolutions stand. The Federal Reserve is trapped. We wrote about it yesterday. The ‘market’ has won because it has trapped the Fed into a stance that it wants or kept it to a stance that the ‘market’ thinks is good for the ‘market’.

I have one problem with that post. If the ‘market’ had a darker vision of growth and inflation, why is that the equity market valuation does not reflect that? Is that because it is no longer a market and nothing but an incestuous insider club underpinned by financial engineering (stock buybacks)?

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