William Dudley, a voting member of the Federal Reserve, said this morning "the case for a September rate hike is less compelling" and "I really hope we can raise rates this year." What changed from 10 days ago when every person in the world (including the Fed) was expecting a September rate increase? Stocks are down 10%.
As this saga unfolds more and more people will begin to understand the Fed is trapped in a corner. They know additional monetary easing (0% rates and potentially QE4) may, in the short term, push stocks artificially higher. They also know taking away the punch bowl and raising rates will temporarily crash the economy.
Dudley has already thrown up the white flag after a only a 10% fall in stocks. Perhaps the Fed can talk the market higher in the short term, but the real crisis will arrive when the Fed announces monetary easing and stocks continue to fall (remember they were easing policy from late 2007 through early 2009 as stocks fell during the entire time).
For more see: Governments & Central Banks Do Not Control Market Movement
Peter Schiff has more on the Fed's dilemma: