The Fed tightened (again) and long-term interest rates fell (again) in a disconnection between the Fed and the bond market as great as any in memory. Since spring, the Fed has tightened .75 percent, and bond yields have fallen .90 percent. By all traditional measures, such a counter-move is a bond-market forecast of a too-tight Fed, and a recession soon to follow. None seems near, though economic data do not support the Fed's insistence that all is well with the economy. If the Fed is nevertheless intent on raising its rate (its August meeting minutes: "Significant cumulative policy tightening likely..."), what would motivate a bond rally? Two answers are floating around: first, oil prices are hurting the economy, stocks are swooning (again) and inflation has receded. All true, but just a...
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