MONEY interest rates

Why U.S. Investors Should Care About the Currency War

A currency war will force the Federal Reserve to keep interest rates low.

At the end of 2014, it seemed all but certain that the Federal Reserve would raise interest rates in the first half of this year. But thanks in part to an escalating currency war and recent flair-up in Europe over Greek debt, those plans have been shelved.

The central bank said on Wednesday that it will keep short-term interest rates between 0% and 0.25% despite its opinion that “economic activity has been expanding at a solid pace.” Importantly, the Fed said that its assessment of when to raise them will take into account “readings on financial and international developments.”

While the bank didn’t offer details about what “international developments” it was referring to, there can be little doubt that the dollar’s strength plays a pivotal role. Since last July, the value of the dollar has soared by 15% versus the world’s major currencies, making U.S. exports less competitive in global markets.

The impact from this has become increasingly clear as American companies report earnings for the final three months of 2014. “The rising dollar will not be good for U.S. manufacturing or the U.S. economy,” Caterpillar’s CEO Doug Oberhelman told analysts and investors Tuesday. Procter & Gamble said its fourth-quarter sales struggled against a “five percentage point headwind” from foreign exchange. And even Apple’s shockingly strong quarter “would have been even stronger, absent fierce foreign exchange volatility.”

The dollar’s strength is being fueled by multiple factors. Lower oil prices have caused currencies in Russia, Mexico, and other energy-dependent economies to fall precipitously. Since the middle of last year, for instance, the Russian ruble has lost roughly half of its value versus the dollar.

Monetary policy by the European Central Bank is also playing a role. In an effort to jump-start the continent’s ailing economies, the ECB announced earlier this week that it would follow in the Federal Reserve’s footsteps by buying 60 billion euros in government bonds each month over the next year and a half. Because this expands the number of euros in circulation, anticipation of the news pushed the euro’s value to its lowest point vis-a-vis the dollar in more than a decade.

Finally, actions by central banks in Canada, Singapore, Japan, and other countries suggest a deliberate attempt to manipulate exchange rates in a broadening currency war. Most recently, Canada cut its benchmark interest rate last week by a quarter of a point, and the Monetary Authority of Singapore said this week that it would take measures to slow the appreciation of the Singapore dollar.

The net result is that the Federal Reserve has little choice but to delay an increase in interest rates. Doing otherwise would only further drive up the value of the U.S. dollar given that higher rates would attract international capital, and thereby boost the demand (and thus price) for dollars.

John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Apple and Procter & Gamble. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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MONEY Jobs

Noooo! GDP Slowed in Fourth Quarter. And That’s Not Even the Worst Part.

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Jan Stromme—Getty Images

While the U.S. recovery continued in the fourth quarter, wages didn't grow as fast as many economists were hoping.

Economists got a fresh read on the U.S. recovery today: The federal government reported fourth-quarter gross domestic product growth slowed to 2.6% from the third-quarter’s 5%.

The good news is few economists expected the economy to outstrip the third-quarter’s robust number. The bad news is slower GDP growth wasn’t the only disappointment. In fact, many experts were looking past that headline number at something else: the Employment Cost Index.

The Labor Department index, a measure of overall employment costs, including wages but also benefits like health care, rose 2.2% year over year for the fourth quarter. It had grown 2.3% in the fourth quarter, and economists had been hoping that it would meet or exceed that mark.

That it failed to do so suggests wage growth—largely seen as the last missing piece of the recovery—still hasn’t picked up as much as we would all like. The upshot is that, while Americans seem to be able to find work, solid middle class jobs are still disturbingly scarce. Sluggish wage growth also means the Federal Reserve, which is feeling pressure to raise interest rates, may have extra breathing room, since rising wages are a key driver of inflation.

Here’s the wage growth trend line, fyi:

ECI
MONEY Economy

Fourth-Quarter Numbers Not As Strong As Hoped

On Friday, economists got a fresh read on the U.S. recovery: The federal government reported fourth-quarter gross domestic product growth slowed to 2.6% from the third-quarter’s 5%.

The good news is few economists expected to outstrip the third-quarter’s robust number. The bad news is slower GDP growth wasn’t the only disappointment. In fact, many experts were looking past that headline number at something else: the Employment Cost Index.

The Labor Department index, a measure of overall employment costs, including wages but also benefits like health care, rose 2.2% year over year for the fourth quarter. It had grown 2.3% in the fourth quarter, and economists had been hoping to see it meet or exceed that mark.

That it failed to do so suggests wage growth — largely seen as the last missing piece of the recovery — still hasn’t picked up as much as we would all like. The upshot is, while Americans seem to be able to find work, solid middle class jobs still appear to be scarce. Sluggish wage growth also means the Federal Reserve, which is feeling pressure to raise interest rates, may have extra breathing room, since rising wages a key driver of inflation.

ECI

 

 

MONEY

Fed Holds Rates Steady as Economic Plot Thickens

The Federal Reserve has said it won't raise rates before summer. But the economy picture is no less complex as the date approaches.

The Federal Reserve wrapped up a two-day meeting in Washington Wednesday, leaving short-term interest rates unchanged at near historic lows.

The move was widely expected: The central bank indicated as recently as December that investors weren’t likely to see a rate hike before summer. But the Fed’s actions were being closely watched nonetheless. With the summer deadline now two months closer, recent moves by the European Central Bank to bolster the continent’s economy have complicated the Fed’s upcoming choice.

The upshot is that for now U.S. consumers should be able to rest assured. Ultra-low interest rates mean borrowing costs for mortgages and other loans are unlikely to climb dramatically. But investors won’t have it so easy: Stock and bond traders will continue to fret about U.S. and European officials’ decisions, meaning more volatility like the sharp drop in Treasury yields (and rise in bond values) that took place earlier this month.

The Fed’s last meeting took place in mid-December amid feelings of increasing economic optimism. The U.S. economy had logged 3.9% GDP growth in the third quarter and the November jobs report was one of the best in months. That’s largely continued. Throw in an assist from cheap gas, and it’s no surprise the President Obama felt safe bragging about the ecomony in last week’s State of the Union.

In short, many Americans are beginning to feel like things are normal again. That’s usually the signal for the Federal Reserve to return interest rates to a more regular footing. Raising rates can slow economic growth — that’s why the Fed doesn’t want to move to soon. But keeping them low can stoke inflation. At 1.6%, well below the Fed’s 2% target, that’s not an immediate problem. The worry is that once inflation starts to rise, it can quickly get out of control.

The Fed’s decision is so tough this time around because it took such extraordinary measures to prop up the economy in the wake of the Great Recession. While so far the Fed’s strategy seems to have worked, no one likes being uncharted territory. Fed officials may feel some pressure to return monetary policy to something that feels normal.

One big problem, however, is that even as the U.S. economy has improved, much of the rest of the world continues to lag. Last week struggles in Europe prompted the ECB, Europe’s equivalent of the Fed, to undertake some extraordinary actions of its own, committing to buy tens of billions of dollars in debt each month in a new bid to stimulate the continent’s economy.

With the global economy so intertwined, the Federal Reserve has to worry weakness and instability overseas could put a drag on otherwise healthy U.S. economic expansion. In particular, the ECB’s move, the equivalent of printing billions of Euros, is likely to weaken the common currency against the dollar. That will make it more expensive for U.S. companies to export their goods — ultimately hurting profits and also providing another check on U.S. inflation.

The upshot is that if the Fed was feeling ready to act sooner rather than later, the situation overseas may be giving it second thoughts. Of course, the Fed has given itself until summer to decide. So it’s got some breathing room, if not quite as much as it did in December.

But in the meantime don’t expect jittery traders to sit tight. The Dow dropped 100 points after the Fed’s announcement from 17,452 to 17,319, while Treasury yields fell as bonds rallied. You can expect more of that kind of drama.

TIME Congress

Paul Gets Assist from 2016 Rivals on ‘Audit the Fed’ Bill

Rand Paul speaks at the Wall Street Journal's CEO Council meeting in Washington
U.S. Senator Rand Paul speaks during the Wall Street Journal's CEO Council meeting in Washington D.C. on Dec. 2, 2014. Kevin Lamarque—Reuters

The three Republicans senators potentially running for the White House in 2016 agree on at least one thing: The Federal Reserve should be audited.

Kentucky Sen. Rand Paul re-introduced a bill with Sens. Ted Cruz of Texas and Marco Rubio of Florida on Wednesday to order the nonpartisan Government Accountability Office to review the Fed’s monetary policy decision making and increase congressional oversight.

The bill has a much greater chance of making it to the Senate floor under new Senate Majority Leader Mitch McConnell, who is one of 30 co-sponsors according to Paul’s office. Former Rep. Ron Paul, Rand’s father, pressed lawmakers for years to audit the Federal Reserve and similar bills have passed the Republican-controlled House in the past.

“A complete and thorough audit of the Fed will finally allow the American people to know exactly how their money is being spent by Washington,” said Paul in a statement. “The Fed’s currently operates under a cloak of secrecy and it has gone on for too long. The American people have a right to know what the Federal Reserve is doing with our nation’s money supply. The time to act is now.”

The bill is unlikely to be signed into law by President Obama. In December, Federal Reserve Chairwoman Janet Yellen said that she would “forcefully” oppose such legislation as it would jeopardize the central bank’s independence with “short-run political interference,” according to the Hill.

MONEY Gold

Gold is Back—for Now

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Shannon Stapleton—Reuters/Corbis

Gold is up nearly 10%. But you're better off admiring this glamorous commodity than trying to buy it.

Gold is starting to shine again.

Since the start of the year, the yellow metal is up nearly 10% from $1,184 per ounce to just over $1,300 at Thursday’s close.

What gives? The move is likely one of the ripples markets have been feeling in response to the European Central Bank’s decision to start buying tens of billions of bonds each month in an effort to stimulate the European economy. While the decision was announced Thursday, investors had been anticipating it for weeks.

Unlike another commodity that’s been in the news—oil—gold has little intrinsic industrial value. But since everyone regards it as precious and has for thousands of years, investors often see it as the ultimate safe place to park cash when other markets look iffy.

It should be no surprise the ECB’s recent move fits that bill. The move was generally well received. The U.S. stock market, for instance, rallied more than 200 points on the news. But this kind of bond buying program is still something new. While the Federal Reserve, the U.S. equivalent of the ECB, successfully implemented its own bond buying program several years ago, there’s no guarantee the latest attempt will work, and there are likely to be unpredictable side effects.

We’ve already seen one. Witness last week’s sudden 30% jump of the Swiss franc when the Swiss central page decided to stop fixing the franc’s value in euros. Investors flooded into the currency in part because it’s seen as likely to hold its value, whereas the ECB’s bond buying is actually meant to produce some inflation in the countries that use the euro. (Currently, the chief worry in the eurozone is deflation, or falling prices.)

The upshot is that while investors are cautiously optimistic, some want to hedge their bets, and gold is one way to do that.

Does it make sense for you? Probably not. It has gotten easier in recent years for small investors to hold gold with the advent of gold-oriented exchanged-traded funds like SPDR Gold Shares (GLD). Some financial planners have taken to putting a small portion of their clients’ assets, say 2% to 5%, in such instruments to guard against the kind of volatility we are seeing right now.

But if gold’s uncertainty-driven rallies can be dramatic, so can the reversals. In late 2011, when markets were still reeling from the financial crisis, gold traded at more than $1,900 an ounce. The Federal Reserve’s own bond buying program, whose second round had kicked off a year earlier, was a big factor in the run-up. Eventually, however, the economy regained its footing—and the inflation many gold fans feared failed to show up. By 2013 gold was back down about where it is today.

And remember, unlike stocks, which represent a share of a company’s profits, or bonds which pay interest, gold doesn’t produce any future wealth, which makes it hard to say what a fair value for it would be. Its jumps in price generally reflect changes in politics and market psychology, which are hard to predict. In the long run, gold isn’t likely to do more than keep up with inflation. Add in trading and investment management costs and most long-term investors are better off just riding out the market’s ups and downs.

MONEY europe

Europe’s Version of the Fed Announces a Big New Stimulus Plan

The symbol of the Euro, the currency of the Eurozone, stands illuminated on January 21, 2015 in Frankfurt, Germany.
The symbol of the euro, the currency of the eurozone, outside the European Central Bank in Frankfurt, Germany. Hannelore Foerster—Getty Images

The European Central Bank just took on its own version of "quantitative easing." Get ready to feel the ripples.

On Thursday European Central Bank president Mario Draghi announced plans to implement a bond buying strategy known as quantitative easing. The ECB, which is the European equivalent of the U.S. Federal Reserve, is hoping to boost the struggling European economy. The Fed implemented a similar effort several years ago.

Under QE, the European bank will buy up tens of billions of euros worth of bonds each month. That should help keep interest rates low and help stave off a worrying trend of falling prices, or deflation.

With the U.S. economy finally humming along, you may be tempted to shrug off the news. But changes in interest rates and prices across the Atlantic quickly ripple across the globe. Here’s how the move could affect you.

It may hold down interest rates and bond yields.

Ever since the Fed cut key interest rates in the wake of the U.S. financial crisis, bond yields have been unusually low. Although many forecasters expect the Fed to begin raising rates in 2015, the ECB’s latest move could keep a lid on how far yields on Treasuries rise.

European bonds already yield considerably less than Treasuries—German government bonds maturing in 10 years pay 0.4%, compared to about 1.9% for Treasuries. If QE continues to depress European yields, more and more buyers are likely to seek out Treasuries, pushing Treasury prices upwards. Bond yields fall when prices rise.

Continued low rates would be good news for borrowers but a mixed bag for investors. Although bonds would lose value when rates begin to rise, many income oriented investors and saver have been frustrated by low payouts, forcing them to hunt for riskier alternatives.

It could further strengthen the dollar.

By buying up bonds, the ECB is essentially creating more euros. On Thursday, the value of the euro fell to $1.16, according to Blommberg. That’s its lowest level in more than a decade. In the long run that should help European companies by making it cheaper for U.S. consumers to buy their goods. But if you own foreign stocks, you’re likely to feel some pain, at least in the short run.

The European stocks you own are denominated in euros, but the value of your account is denominated in dollars. As the dollar rises, a European stock simply isn’t worth as many dollars as it was before, assuming its price in euros didn’t change. The good news is, you don’t need to worry unless you plan to sell right away. In the long run, such currency fluctuations should even out.

The U.S. stock market is happy—for now.

The Dow climbed about 117 points, or 0.7%, to 17,671 in morning trading. While it’s always tricky to interpret stock market ups and downs, it seems likely investors are applauding the ECB’s aggressive action to prevent a deep recession, just as they did over the past several years when the Federal Reserve made similar moves. With the U.S. economy finally humming, the Fed’s strategy seems to have worked. Ultimately the best thing for stock values is to get Europe, a major driver of global growth, back on the same path.

MONEY Economy

Swiss Currency Has Shot Up 15% So Far Today. Here’s Why That Matters

A Swiss coin is seen beneath a euro banknote on Januay 15, 2015 in Lausanne. In a shock announcement on January 15, Switzerland's central bank said it was ending a three-year bid to artificially hold down the value of the Swiss franc against the euro, in a move that immediately sent the safe haven currency soaring. Fabrice Coffrini—AFP/Getty Images

Chaos in the currency market is a sign of deep problems for Europe—and the whole global economy.

The global economy got a lot more interesting today, and maybe a little more scary, when the Swiss National Bank ended its commitment to a fixed exchange rate between the Swiss Franc and the euro.

Currency markets went into a frenzy. The Swiss franc immediately rose 30% in value against the euro, mirrored by a spike in its U.S. dollar value. Some of those gains have pulled back, with the currency up about 15% at midday. That’s still a huge move.

Okay, so it’s been a big day for currency traders—and anyone planning on a ski trip to the Alps. But what’s this mean for me?

The wildness in the market underscores the big economic story of the moment: Europe’s slide toward a recession. In a globally connected economy, weak demand in Europe could weigh on the recovery in the U.S.

So what exactly happened?

Swiss francs rose because the Swiss central bank removed an artificial cap on the price of an asset people really, really want right now. The import of the story is less about the sudden price change today than about why people want to trade their euros for francs in the first place.

Switzerland isn’t a part of the eurozone, the group of countries that share the euro as a currency. Swiss assets denominated in Swiss francs have long been considered a safe haven—a parking spot for investors around the globe when they are feeling jittery.

The eurozone has given people a lot be jittery about. In the wake of the Greek debt crisis at the beginning of the decade, investors jumped into francs, strengthening the currency against others. The problem with that for the Swiss is that it makes the goods produced by Swiss companies more expensive to export. So the Swiss National Bank (that’s like their Federal Reserve) capped the value of a franc at 1.20 per euro.

It also decided to start charging negative interest rates, meaning investors in effect have to pay a fee to park their money in a Swiss bank. That’s another way of fighting currency overvaluation. Today, at the same time as it cut the currency peg, the Swiss bank lowered the short-term interest rate from -0.25% to -0.75%. That is, they raised the penalty for stashing money there. Even so, the rally in francs shows there remains a lot of demand for doing just that.

Why did the Swiss cut the exchange rate peg?

The surprise move comes as Mario Draghi, president of the European Central Bank, is considering new measures to stimulate the eurozone economy. Many investors expect the ECB will take a page from the U.S. Federal Reserve and start buying long-term debt to push down long-term interest rates, a strategy known as quantitative easing.

A euro QE is broadly expected to bring down the value of the euro compared to the U.S. dollar. The Swiss, it seems, didn’t want to tie the value of its own currency so closely to the policy makers at the ECB.

“Recently, divergences between the monetary policies of the major currency areas have increased significantly – a trend that is likely to become even more pronounced,” the Swiss central bank said in a statement. “The euro has depreciated considerably against the US dollar and this, in turn, has caused the Swiss franc to weaken against the US dollar. In these circumstances, the SNB concluded that enforcing and maintaining the minimum exchange rate for the Swiss franc against the euro is no longer justified.”

Pity Swiss watchmakers, though. Their timepieces just became more expensive for foreigners to buy.

MONEY Federal Reserve

If the Fed Is Worried About Wall Street Bubbles, Maybe It Should Regulate Wall Street

Foot of George Washington statue with view of NYSE in the background
Randy Duchaine—Alamy

The Fed ponders raising interest rates to tamp down on financial speculation, but tight money is not the only option.

The Federal Reserve and the bond market are in a weird place right now.

Many officials inside the central bank are anxious to start getting back to normal, and to move short-term interest rates off the near-zero they’ve been at since the financial crisis. But the bond market isn’t listening: Even knowing that the Fed wants to tighten, investors have piled into long-term bonds, holding the benchmark interest rate for 10-year debt at just 2%.

This could mean that the bond market thinks the Fed is just plain wrong in its increasingly upbeat assessments of the economy. Investors’ eagerness to park money in low-yielding but credit-safe Treasuries seems to indicate deep worries about the prospects for long-term growth, and little concern about inflation. But as the Wall Street Journal’s Jon Hilsenrath noted yesterday, some inside the Fed are considering another interpretation of low bond yields. Maybe foreign investors are just pumping up U.S. assets because troubles overseas make anything denominated in dollars more attractive. If that’s the case, the Fed should be worried about asset bubbles.

And so, counterintuitively, New York Federal Reserve president Bill Dudley has been arguing that low long-term bond yields may be a reason for the Fed to tighten short rates even faster — to prick any bubbles that might be forming. Dudley, in a December speech cited by Hilsenrath, draws a comparison to the mid-2000s:

During the 2004-07 period, the [Fed] tightened monetary policy nearly continuously, raising the federal funds rate from 1% to 5.25% in 17 steps. However, during this period, 10-year Treasury note yields did not rise much, credit spreads generally narrowed and U.S. equity price indices moved higher. Moreover, the availability of mortgage credit eased, rather than tightened.

Easy mortgages, it hardly needs pointing out, did not work out so well.

But raising rates is the only way policymakers could respond to concerns about reckless borrowing. On Twitter, economist Adam Posen, a former member of the Monetary Policy Committee at the Bank of England (the U.K.’s version of the Fed), ticked off some other possibilities.

All of these things amount to greater scrutiny of and tighter controls on bank lending behavior. Such policies are known in central-banking jargon as “macroprudential” regulation. The Fed itself is a regulator of banks. And even in the parts of finance where the Fed doesn’t have direct regulatory authority, it has influence as part of an umbrella group of “stability” regulators created after the crisis. It can also sound loud warnings, asking Congress for more regulatory tools and better rules.

Confronted with the possibility of financial-sector bubbles, we seem to have two choices:

1) Raise interest rates until the economy cries “uncle” and no one wants to speculate anymore. Do it even if it’s taken years and years for the economy to get anywhere close to full employment, and even if wage growth is still sluggish.

2) Make sure banks don’t leverage themselves up too their eyeballs, that Wall Street doesn’t create AAA-rated derivatives on junk mortgages that no one understands, and that people don’t get loans they can never pay back.

If forced to choose, I suspect people in finance, who most certainly have the Fed’s ear on these things, prefer the blunt hammer of option #1 over option #2. They’ll moan about regulation, and question whether it’s even realistic. And frankly, the Fed often hasn’t done that job very well. Wall Street has some of the cleverest people in the world working 24/7—crack down on one crazy, risky scheme, and they’ll come up with a new one. It’s also not crazy to be skeptical of the idea that central bankers will be able to know a bubble when they see it.

But of course trying to prevent bubbles by raising rates and tightening money is a form of regulation, too. The immediate costs are spread out a lot more widely, to everyone looking for a job or hoping to get a raise. And if the Fed should be humble about its abilities as a Wall Street regulator, well… it doesn’t have such a great track record on predicting when the economy will be healthy, either. So maybe it shouldn’t be too quick on the interest-rate trigger when inflation is still very low, unless there’s real evidence of an asset bubble somewhere.

MONEY

The Fed Sees the Economy Getting Back to Normal. The Market’s Not So Sure.

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SAUL LOEB—AFP/Getty Images

Why bonds are rallying even as the Fed hints at tightening.

The Federal Reserve has been signalling that it is getting ready to raise short-term interest from near-0% later this year. It recently ended its purchases of bonds under the unconventional stimulus program known as quantitative easing. Read the front-page newspaper headlines, and it looks like the era of very low interest rates is coming to an end.

But the numbers on the market tickers are telling a different story. This week the yield on safe 10-year Treasury bonds, a benchmark for long-term interest rates, tumbled to below 2%. What gives? How is it that interest rates are going down when it looks like the Fed wants to raise them?

The answer, in part, is simple. The Fed doesn’t get to set interest rates on its own. Day-to-day market commentary make it sound like interest rates can be changed with the push of a button: Fed chair Janet Yellen and the rest of Federal Open Market Committee declare that rates shall rise, and then, boom, you get a better deal on CDs and have to pay more to refinance your house.

In fact, in normal times, the Fed only sets short-term rates. What happens to rates on loans maturing years down the road is determined by investors, and it all plays out in the moment-to-moment fluctuations of yields on the bond market. When demand for bonds is high, their prices go up and yields go down; yields rise when bond prices fall. Bond investors think a lot about Fed policy, but they also have their eyes on a host of other economic fundamentals that determine how much it should cost to borrow money.

“Fed policy matters a lot in the short term,” Ben Inker, co-head of asset allocation at the mutual fund manager GMO, recently told me. “It only matters in the long-term if they show themselves to be incompetent.”

Of course, these haven’t been normal times. With the quantitative easing program, the Fed had also been buying up longer-term Treasuries. Lots of people believed that this meant yields were artificially low, and would spike once it looked like QE was over. But the end of the Fed’s bond purchases hasn’t led to a spike in rates. It turns out investors still really want to hold long-term government bonds. “I think now what people are saying is maybe rates weren’t artificially low—maybe they were low for a reason,” said Inker.

Investors like to hold Treasury bonds when they don’t care for the alternatives, such as putting money into expanding their businesses or building new office buildings, houses, and factories. And they are happier to accept low rates when they don’t see much risk of the economy overheating and producing inflation. In short, the low long-term yield on bonds reflects the market’s fairly pessimistic outlook for growth in the long term.

The latest economic numbers from the U.S. are looking healthier lately. Unemployment has come down, and consumer confidence is up. Bond markets, however, are seeing a lot of bad news abroad, and perhaps are worrying that it will spill over to the U.S. In Europe, for example, very low inflation is threatening to turn into deflation—or falling prices—which may sound nice for consumers, but reflects weak demand and makes it harder for borrowers to settle their debts.

The weak global economy has also brought down yields on other government’s bonds—Germany is paying 0.5%—which make Treasuries look like a comparatively good deal. That’s another factor keeping demand for U.S. bonds high and yields low right now.

So here’s the picture: The Fed sees an economy that’s getting stronger, and is looking to raise short-term rates sometime this year to get ahead of the risk of inflation. But markets still see plenty to worry about. Those worries may include, as economist Brad Delong has pointed out, the risk that the Fed may slow down the recovery too soon.

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