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The Fed is sort of forced to not take any action!

If they take any action, it either stops the bubble or it doesn't. If it stops the bubble investors get all mad at the Fed for cutting off their gains; companies complain that they can't expand like they want to because credit is too tight & interest rates are too high. The fed has to stave off a major lobbying effort (politically costly) and gets accused of mishandling the economy.

If the Fed's action doesn't stop the bubble, the investors still get resentful at it for messing with them. And then when the bubble pops, the investors, unwilling to blame themselves, will blame the Fed for destroying the market.

If the Fed doesn't take any action and the bubble does not develop, they look competent.

If the Fed doesn't take any action and a bubble develops, the Fed gets worshipped as the architects of the New Economy. [This happened.]
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