[rodionos]

Once the Fed funds rate gets closer to 5%, you'll see more pushback from politicians and media. What does the Fed do in this situation if it needs to keep tightening? It may choose to switch to smaller rate changes, or even go flat, and at the same time embark on Treasury sales, or at least, rebalancing along the curve. So either way, not a good time to be in bonds.

[RC_ITR]

Here's what's weird. Believe it or not, the Fed Funds Rate lags 10Y Treasuries and rarely goes above it [0]. I would even go as far to argue that's it's mainly a potemkin policy tool at this point, since our economy is so exposed to 10Y Treasuries, which have completely unrelated pricing dynamics.

So in practical terms, if there is political pressure to lower the 10Y, The Fed will probably cut Fed Funds (doing nothing, hopefully dropping it as a policy tool going forward) and then everyone will kind of realize QE is the only current policy tool that actually works.

But then what, people will be calling for more QE to make mortgage rates drop? I mean fine, but it does speed up the 'when does the market question the concept of the Fed owning the Treasury's debt' problem.

[0] https://fred.stlouisfed.org/graph/fredgraph.png?g=TXsO