Today's column:

The business press paints the Federal Reserve as omnipotent. Maybe once it was. But events are likely to prove it has lost some of its mojo.

The nation's central bank controls a smaller piece of the global economy than in the last severe recession, in the early 1980s. And it no longer influences the price of oil as it once did.

Those seldom-acknowledged facts make its job more difficult, and the outcome of its efforts to fight inflation or keep the country out of a bad recession more uncertain.

Read the whole thing here.

The point is reinforced by former Fed Chairman Paul Volcker, who in an interview with the Dutch magazine FEM Business said this, in response to the question: What is fundamentally different now in comparison with the 70s?

“The old fashioned commercial bank function has been minimized and the market functions are more dominant. Trading has exploded since the 70s. In the US, bank credit used to be the large portion of the total credit business which is no longer the true. Those changes underlie the recent actions by the Fed. The old theory was that of you protect and stabilize the banking system, you do not have to worry about the rest, that can take care of itself without harming the economy. That is no longer true and that is why the downside seemed so big when Bear Stearns was in trouble.”

Thanks to author Edin Mujagic for the link.