Yucky Yields

yuckyIf US long-term interest rates are falling because long-run inflation expectations are dimming, the Fed should wait before raising short-term interest rates. But what if our long-term rates are declining primarily because foreigners are pouring money into our long-bonds because rates in Japan and Germany are profoundly low? If it’s the latter, it might create asset bubbles and a rise in short-term rates would be advisable. Welcome to central banking!

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