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The Fed Boosts the Stock Market

The Federal Reserve has kept interest rates low for about a decade, ever since the Great Recession of 2008.  It has kept an eye on the stock market as an indicator of how the overall economy was doing.  The Fed was motivated to keep the stork market going up.  It subscribed to the trickle-down theory, that if you make the rich richer, some money will trickle down to ordinary people.  Stock market investors are predominantly wealthy, especially if you look at the size of their investments.  Ordinary people may own a few hundred or a few thousand shares; wealthy investors own tens of thousands or millions of shares.  According to the Motley Fool, the wealthiest 10% of Americans hold 89% of all stocks, worth about $36 trillion.  Keeping the stock market going up primarily benefited the rich. 

The decision by businesses to do away with most guaranteed retirement programs in favor of 401(k)s brought many new investors into the market and helped increase prices.  They are largely passive investors because of the way 401(k)s work, which puts a huge stake on the market gambling table for active investors to play with and make huge winnings.   

Watching the financial channels – Bloomberg, CNBC, and Fox Business – you see that the financial community is fixated on the Fed.  It is wishing and hoping that the Fed will cut back its inflation-fighting program of raising interest rates and selling bonds (quantitative tightening), because the Fed belt tightening depresses the stock market. Investors want the Fed to reopen the money floodgates. 

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