Breaking Bad

The less we say about it the better
Make it up as we go along
Feet on the ground, head in the sky
It's ok, I know nothing's wrong
--Talking Heads

Yesterday the FOMC announced that it would raise its fed funds rate target another 25 basis points to 2.25%. It is the eighth increase since late 2015. The last time the fed funds rate was increased to 2.25% was January of 2005 on the way to a peak of 5.25% before the Fed began furiously cutting rates in response to the last credit crisis.

The Fed is behind the curve as always. Real rates remain at historic lows that historically correspond to deep recessions. This despite nearly all data suggesting economic strength and rising wages. Meanwhile, balance sheet assets accumulated during the various QE bond buying sprees have barely declined.

A couple of days back a frequent contributor on Fleck's Q&A observed that "rising rates eventually break credit bubbles."

Stated differently, central banks eventually break the bubbles that they themselves blow.