This is a sea change and needs to be watched carefully. If it continues, it will make the Fed's job of lulling the markets into complacency much more difficult.
In reading the Fed's "words" today I am more convinced than ever that they will do everything in their power, although that is nothing compared to the power of the markets, to keep rates low.
All depends on that. The Fed can confuse with talk of inflation, that deficits don't matter, that there is little risk of deflation. This is all rhetoric.
What is essential is that with huge debt in both the public and private sector, the U.S. pays off that debt with cheaper dollars (low rates) without spooking our foreign lenders. Once they become spooked, the game is all over.
The Fed is very concerned that stocks, bonds, and the dollar have all become positively correlated: bonds down, stocks down; dollar down, stocks down. This is a much more difficult situation for the Fed to control. They will do everything they can to convince the markets that a lower dollar is not bad and that rising rates are good.
You can feel the difference in this market from even six months ago. Stocks are now begging for low rates to continue.
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