Mish, I always read you bashing the Fed, particularly lately, with the criticism that they will "cave", lower interest rates, and feed yet another bubble (at least that's what I think you are saying!). So, being an amateur economist (Economics Degree, but, worked in oil exploration for 30 years!), I have a question. If long term interest rates, set by the market, remain low, reflecting the balance of supply and demand for money at those maturities, what is the Fed supposed to do? Should they continue to raise interest rates, slowly but surely to +/- 5 percent, because that is the historical norm, and that will give them enough room to lower interest rates in the future? To me, the fact that long term interest rates are, and have been, low is due, once again to the supply and demand for money, and shows that the "market" thinks that future inflation is going to be very low going forward as efficiency gains reduce the costs of.... everything!
If the fed simply tries to keep raising rates because "that's what they should be in a normal economy", then, without a doubt, they will just induce a recession, thus "popping the bubble", and bring a load of misery to the overall economy.
My amateur self, always thought that they should raise, but, very, very slowly, as conditions permitted, allowing the economy to run, but, keeping their short term rates in line with the longer term "free market" rates, maybe at a pace of 1/4 point to 1/2 point a year going back to when they first started raising.
Would love to hear you expand on your thoughts regarding this subject.