Markets have been quiet this week in front of a long holiday weekend and next week’s big load of economic data, which will make or break the Fed’s decision to increase the cost of money at its meeting on June 14. Expect “make.” So, depart short-term immediacy for the long view. The longest: the Fed, inflation, interest rates, and the economy. And a wide view: the afflictions common to central banks everywhere. And an unsettling view: markets trading in narrow ranges often mask surprises. US 10-year T-note in the last year. Very clearly held down by ultra-low rates overseas, and vulnerable to sudden awareness that the Fed means business. Long-term rates are the most important ones if for no reason other than their effect on real estate, the largest class of assets in any economy. Long-term rates move in response to inflation, and it’s the primary job of all central banks to keep inflation under control. During the 20th Century, “under control” meant down. In the …
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