First the real stuff, then the Wheelchair Accessible Fiscal Door Sill. Long-term interest rates rose sharply this week, the 10-year T-note's 1.93 percent the highest since last April, and mortgages above 3.5 percent, the top since summer. Three forces are in play: First, December meeting minutes released yesterday suggested the Fed may scale back or end QE4 bond-buying this year; second, hints of a better economy; and third, markets less than thrilled by fiscal substance-abusers. Fear of Fed reversal is overdone. It is buying $85 billion a month in Treasurys and MBS, a $1 trillion per year pace that was never likely to continue for long.The Fed's commitment to a zero percent cost of money stands unchanged, linked to a 6.5 percent unemployment rate (not soon), and that zero percent cash will hold down long-term rates. Nearly every Fed forecast for the economy since 2008 has been wrong on the high side, and the economy is now entering protracted period of fiscal drag. ...
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