Today is not a good day for the Fed when you take a look at this morning's headlines.

Second, Producer Prices were released today and we were reminded that the law of unintended consequences is in full effect.  It seems that when you print electronically create over a trillion dollars and increase the money supply by 17% in two years that prices might also go up.  Check out the one year changes in Producer Prices:

• Finished Goods +5.8%
• Intermediate Goods +8.9%
• Crude Goods +16.4%

While the professors at the Fed will argue that we need to look at the overall inflation picture and ignore food and energy, the simple fact is that manufacturers are paying massively higher prices.  They have a choice -- take a hit to earnings, or pass those prices on to the consumers.  Either way, it is not good for the economy.  The focus on margins may make earnings season even more volatile.  Not all companies are like the banks and able to post fictional earnings.  If those rising producer prices begin to hurt earnings or consumers the Fed's safety net may have to be pulled away sooner than anybody would like.

The third strike against the Fed came late yesterday when the Senate Barn Door Committee Permanent Subcommittee on Investigations released a scathing report on the mortgage crisis and specifically singled out Fed darling Goldman Sachs' tactics as 'disgraceful'.  They are also urging the Justice Department to investigate Goldman's CEO's testimony before Congress.

As a reminder, the Fed was pushed by former Goldman CEO and Treasury Secretary at the time, Hank Paulson to allow Goldman Sachs to become a bank in 2008.  Despite not having any retail bank branches where we can open a checking account, this allowed Goldman to borrow from the Fed at basically zero percent interest and allowed them to receive TARP money.  The bailout of AIG also was primarily done so they could pay Goldman on the insurance they bought on the crappy mortgages they packaged and sold to investors.  

Goldman is also one of the primary beneficiaries of the Fed's Quantitative Easing operations.  It doesn't help the Fed's image that William (inflation isn't a problem because wages haven't gone up and the IPad2 costs the same as an IPad1) Dudley is a former Goldman partner.

For a lighter look at how Goldman benefits, see "What is Quantitative Easing?"

Finally, while the news is not directly related to the Fed, the problems in Europe are likely serving as a reminder to the Fed about the moral hazard of rescuing people that are not capable of every getting back to solid ground.  Greece's 10 year yield is now over 13% as people become worried that they may not be able to pay back their loans (something I wrote about last fall).  The people in Ireland are beginning to realize that the bailout forced on them is doing more harm than good, increasing the risk that they may strategically default on their debt.  Then you add in continued problems in Portugal along with the Spanish banks going to China for cash infusions and you start to see that using more debt to fix a debt and spending problem may temporarily work, but the free market eventually wins.  The lesson out of Europe -- you cannot magically make debt go away without a huge price. 

The market is still holding onto some key levels.  It looks like today it may test the 1295-1300 area that has been support many times.  One concern for the bulls in the market has got to be the fact that the market has taken hard hits whenever the government is scrutinizing the actions of Wall Street (until the Black Helicopters start flying.)