MacroMarketMusings:

This downward march of interest rates has occurred prior to and after QE programs and is therefore not the result of central bank tinkering. Rather, it is the result of far bigger global market forces. One interpretation of this movement (based on the expectation theory of interest rates) is that the market expects future short-term interest rates to be increasingly lower. As Tim Duy notes, the Fed is fighting against this force and is unlikely to win. Put differently, interest rates are being suppressed by market forces despite the Fed's best efforts. The Fed will not be able to raise interest rates this year and maybe even next year.

Now the Fed could still force up its target interest rate temporarily. But it would learn the hard way what the Riksbank in 2010 and the ECB in 2011 learned: getting ahead of the recovery and market forces will only make matters worse. In the case of the ECB, it created another recession for the Eurozone. Ultimately, interest rates cannot be exogenously pushed up. They have to be endogenously pulled up by a healthy economy. Until this happens, the Fed is trapped in a self-defeating rate hike talk cycle.

Yup - unless things change substantially from the current path.

(Via Brad DeLong's blog)

Cheers,
Scott.