The error is the assumption that the Federal Reserve contols the economy or even the money supply. All the Fed controls is outside money, reserves and the discount rate. The money supply and the economy is controlled by the private markets
well lets face it, the Fed under Section 13 (3) can do absolutely anything it wants and is doing so. It is allowing Obama, for example, to spend all he wants by simply ,in effect, giving him the money, and thus denying it to the private sector where real growth actually starts. Imagine if Obama had to raise taxes or cut spending like in the real world? The Fed is controlling short and long term rates, it shut down the repo market, bought toxic securities, and God knows what else.