The Fed revisited some old financial records by hiking by 75 basis points today. This is a signal that they have thrown out whatever remains of the models that suggested that inflation is transitory, and they are hiking until something breaks.

From a central banker’s perspective, this is the optimal strategy. Central banks are part of The Establishment, and inflation is anathema to The Establishment. No central banker ever got fired for causing a recession.

Even if the Fed says they are concerned about inflation expectations, most inflation expectations series are just telling us what happened to gasoline prices. As such, the central bank is firmly backward-looking, and will only stop once some form of crisis hits.

Although the housing market is vulnerable, it is still a relatively slow-moving market. The brakes slammed hard in 2008 — but that is because the circular flows in financing stopped dead. Unlike then, credit still seems to be available — at the right price. As such, I would be more concerned about weakness in overseas economies hitting before the domestic economy rolls over on its own.

Although this is an interesting (and ugly) situation for the bond market, I will let the dust settle before commenting on what is priced into the market. The big question is: what is going to happen to the term premium? And if the risk premium rises, what part of the curve will it show up?