The Fed and Treasury are both trapped. Raising short term rates punishes the innocent man on Main Street. First the oil shock raises prices. Then tightening starts crushing demand
The bond market is beginning to withdraw the subsidy that made the entire post-2008 system possible. For fifteen years, the U.S. could fund enormous deficits, support high asset valuations, keep housing finance cheap, and roll debt at low rates because duration was treated almost like a public utility. Investors accepted tiny compensation for lending to … Read more