All rights reserved. The reality is something else.
Inflation remains subdued and the economy is strong but far from out of control.
Higher interest rates in the U.S., if they persist, will have a strongly negative impact on both our economy and the rest of the world. A few months ago I suggested that the second calendar quarter would be a good one for bonds. Treasury securities were going to be in relatively short supply due to the federal budget surplus, prices would rise only moderately, and the level of economic activity would do little to push rates higher. In fact, Treasury bond rates are now 120 basis points higher than they were at their October 1998 lows, and the last two months are responsible for about half that increase. Clearly, something went awry.