As expected, the US bond market is reacting in unanticipated ways given the formal announcement of quantitative easing II. Prices of 10 year government bonds have fallen!
This means that interest rates are rising! Of course this will hurt economic growth.
My blog post predicted such unanticipated consequences:
Based on the following excellent article, I believe this is a short-term phenomena that reflects profit taking. Nonetheless, the end result is all that is important. For the near-term, interest rates are going up!
Gongloff, Mark, 2010. Bond market defies fed. The Wall Street Journal, Nov. 16.
One quote from the article should give pause to those who expect American economic growth for 2011:
"In an interview conducted last week, the Fed's new vice chair, Janet Yellen, defended the program [QE II], given an economic outlook that seemed to portend high unemployment, low inflation and lackluster growth for some time." bold added
"'I'm having a hard time seeing where really robust growth can come from,' Ms. Yellen told The Wall Street Journal. 'And I see inflation lingering around current levels for a long time.'"
I think folks need to prepare for a substantial period of modest economic growth (see 1937).
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