Is There a Paradox of Low Market Volatility?

Now, it seems the Fed would be less afraid if it saw investors being more afraid, or at least that is the new conventional wisdom. That is a coherent view if the Fed knows that it doesn’t know what it is doing with the unwind of the taper and the like. The Fed has private information that things may be screwy, but private investors don’t have that same information. The Fed then thinks that investors might thus be overextending themselves and then the Fed gets worried all the more.