Market Preview: The Great Consolidation

Updated from 5:49 p.m. ET to add news about Yahoo! naming a new CEO.

NEW YORK (TheStreet) -- It's been less than two weeks but QE3 is really having a hard time living up to the hype.

Stocks tanked on Tuesday with most of the selling pressure coming after Philly Fed President Charles Plosser put the smackdown on the Federal Reserve's open-ended bond buying pledge.

That's no surprise, given Plosser's hawk status, but the tone of his criticism seems to have spooked the bulls a bit as he made the case that the central bank's credibility is set up to take a major hit if this plan to basically pull out all the stops doesn't yield the intended results.

"Thus, in my view, we are unlikely to see much benefit to growth or to employment from further asset purchases," he said, according to the published text of the speech. "If I am right, then conveying the idea that such action will have a substantive impact on labor markets and the speed of the recovery risks the Fed's credibility. This is quite costly: If the public loses confidence in the central bank, our ability to set effective monetary policy in the future will be harmed and households and businesses will feel the consequences."

It's a fair point. The global economy may not come along for the ride -- see Caterpillar's (CAT) outlook -- and that's likely to have a bigger impact on whether job creation kicks up in the United States than the Fed snapping up mortgage-backed securities every month for time immemorial.

Plosser's point on the Fed's lack of an exit plan also seemed to resonate.

"While these risks are very hard to quantify, it is clear that the larger the Fed's portfolio becomes, the higher the risk and the potential costs when it comes time to exit," he said. "And based on my economic outlook, that time may come well before mid-2015. In my view, to keep the funds rate at zero that long would risk destabilizing inflation expectations and lead to an unwanted increase in inflation. In fact, some are interpreting the FOMC's statement that we will keep accommodation in place for a considerable time after the recovery strengthens as an indication that the Fed is focused on trying to lower the unemployment rate and is willing to tolerate higher inflation to do so. This is another risk to the hard-won credibility the institution has built up over many years, which, if lost, will undermine economic stability.

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