Rates Take a Powder

Well, we hung on for a while, but the ride appears to be over for the forseeable future. Bond rates today touched - and then broke - a 21-month high, based on employment numbers that were in the main pretty even, but which are being interpreted as an indicator that the economy is hotter than the Fed likes, and that will mean rising rates.

Note what I'm saying here. I am not saying that these employment numbers are being seen as an indicator of inflation. Employment, even full employment, is a measure of productivity and rising productivity is actually a depressor of inflation. No, what I said was that the market is interpreting this data as being negative because of the FED. The market itself appears to have a good read on what consitutes inflationary pressure, and it isn't seeing any. But the Fed sees it, and that means the Fed will keep raising short-term interest rates. That creates pressure on bond ratess across the spectrum; in the long run, an inverted yield curve is not sustainable.

So if you're buying a house, your interest rate just went up a quarter point in the last two days. Blame Ben Bernanke. Or, if you want to get to root causes, blame John Maynard Keynes, whose completely discredited economic philosophy is, nonetheless, the dominant one at the Federal Reserve.

I have friends that believe the Fed itself is illegal. Though I don't believe this, I am solidly rooting for them to have some impact.