Bond rate yields show Wall Street is worried about QE

On Wednesday, Wall Street became worried (again) that the Federal Reserve would soon start scaling back on its Quantitative Easing bond-buying program.

By Friday markets will probably abruptly change their minds.

As much of a disaster as QE has been for the economy, the Fed is unlikely to “taper” the $85 billion a month program anytime soon.

The economy just isn’t strong enough.

Rates on the 10-year US securities rose sharply to 2.85 percent Wednesday — a three-month high —in anticipation of Fed adjustments to QE. That bond was yielding just 2.5 percent on Oct. 29.

Not helping are world situations that are beyond our control.

The US finds itself in the middle of a dispute between China and Japan over tiny islands in the East China Sea. Both countries are big buyers of US government debt.

China has already accused the US of siding with Japan in the matter. If either China or Japan suddenly decides to retaliate against Washington by boycotting US debt auctions, interest rates could rise quickly and even more dramatically than they already have.

The end result, of course, is that anyone who tries to borrow money in the future will be paying a lot more to do so.

If the economy ever does boom, borrowing costs could rise so rapidly that the boom will quickly bust. That’s the risk in Fed-controlled markets.

But the worries that the Fed may taper might not last past Friday’s announcement by the Labor Department of its November job-growth figures.

Wall Street is expecting growth in the 180,000 range, compared with 204,000 in October.