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Better question: Why should the players fear the almighty GM?Winning when you could have lost is exciting, winning when you should have lost is exhilarating. A GM is shortchanging their players if the GM denies the players the pleasure of having their characters overcome real challenges.
Providing the characters with a real challenge is entirely doable without inducing fear in your players. The feeling you should be aiming for isn't terror, but respect. Respect for their opponents.
OP, I'd suggest coming clean. Tell your players that you feel you're less than happy with the difficulty of the campaign for the last few weeks, and you're worried that they'll grow bored if it continues being too easy. Then take their feedback into account. Some players enjoy difficult fights, some enjoy easy fights that allow them to play suboptimal character designs, and some don't particularly care for combat at all and would rather focus on the RP aspects. It's always good to know which group your players fall into.
If they agree (or at least don't disagree) that the campaign could do with a bit more challenge, tell them that you will take that into account in the future and remind them that they will benefit from playing it cautiously as you tweak the challenge level over the next couple of weeks. Gradually ramp up the difficulty of your encounters by combining clever tactics and higher CR opponents until you reach a level you're happy with. You can often make a fight significantly more difficult by playing them intelligently or reassigning feats on a stock monster. For example ten orcs with falchions is a stock encounter, ten orcs with a mix of glaives and longbows utilizing difficult terrain and cover to their advantage is significantly more dangerous.
Do it right and everybody wins - you get to give the players a better challenge, and the players don't lose a character and get to be heard and included in the conversation. Great way to build respect both for the players and for the GM.
Better question: Why should the players fear the almighty GM?Winning when you could have lost is exciting, winning when you should have lost is exhilarating. A GM is shortchanging their players if the GM denies the players the pleasure of having their characters overcome real challenges.
I think there's a big difference between "the GM should make combat fun and challenging" and "the players should fear the almighty GM."
Player opinions on how much challenge is fun can vary widely even within a particular group. I think Hero Points can be a good solution for allowing cautious players to have a fair shot at survival even if you crank the difficulty way up. Meanwhile the daredevils can blow their Hero Points on bold and stupid deeds and still achieve the glorious death they seem to crave.
Some might think a game which uses Hero Points is bound to be "too soft", but I'd rather see PCs have a mechanic to legitimately survive rough treatment than have the DM wear kid gloves all the time, fudge things, use glaringly bad tactics after the PCs start losing, etc. We roll our dice outside the screen for all the honest world to fear, and I'd say that without Hero Points very few PCs would have survived most of our recent campaigns. We're not exceptionally daring, and our PCs except for one particular party tend to be pretty effective. With the fudge gloves off the game is very dangerous at times though.
I would strongly suggest heading over to Nearyn's post on this and other related issues. You can find the thread here.
It sounds like there's a sort of battle going on in your group, between who's in power, and frankly, neither side should be. It should be a matter of cooperation in order to create a great story.
A great story doesn't include people who just waltz all over all the opposition. At least, that's how I feel. A great story means overcoming almost impossible odds, perhaps even suffering losses along the way, but when all is said and done, the heroes are still standing.
Maybe you could make a large mansion, cave with ruins, whatever and give it some potent haunts. They're not easy to destroy on their own and can often lead to scenarios in which the player's character feels "afraid". Toss in some creepy stuff for them to actually fight and you have yourself another session or two.