You can watch markets for a long time and not see a one-week reversal in psychology -- and reality -- as large as this. Mortgages are pulling back slowly from 6.75 percent, but the immediate threat of 7 percent has disappeared altogether. One week ago, bond and stock markets were drowning in the depressing soup of an obvious inflation problem and a Fed too timid to do anything about it. Then it got worse: Tuesday's CPI affirmed the fear, the core rate rising .3 percent for the second month in a row, way over the Fed's 2 percent-annual ceiling. Then things got weird. Investors dumped stocks and bonds by the bale after the CPI news, but late in the day, long-term bonds, the most inflation-sensitive products in the financial universe, began to rally. By late Tuesday, light had dawned that a CPI report this bad would force the Fed to react, and therefore the odds had risen for the bond market's dream of Christmas, a Fed overshoot on the tight side. There's nothing like a recession for incr...
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