Markets & Economy

Fed’s work is not done

Commentary: Until recovery is self-sustaining, slow exit from QE3 is warranted

Interest rates on long-term bonds and mortgages have stopped their May rise, a little above the halfway mark of the low and high for the year. The tilt seems to be upward, but the trading pattern has been chaotic and artificial, trading on guesses at the Fed's intentions to continue, trim or stop QE3 bond buying. Bond markets everywhere always trade on central bank intentions to ease or tighten money in the future -- nothing artificial about that -- but the central banks themselves have for five years engaged in artificial, full-scale-emergency-experimental action to prevent a rerun of the 1930s, or worse. Trading on central banks is once removed from the real drivers: inflation and economic growth. Every interest-rate analyst is always caught in this loop: What does the Fed think of incoming data, and how will it react, right or wrong? Complicated today by this wrinkle: In normal times the Fed attempts pre-emptive action, knowing that its moves take six to 18 months to have e...