What If the Fed's Economic Recovery Plan Is Just Plain Wrong?

Charles Dharapak/APFederal Reserve Chairman Janet Yellen At the core of the Federal Reserve's credibility is its insistence that it can hold interest rates low enough for long enough to ensure a complete economic recovery. The reality may prove quite a bit different, particularly if current trends hold up. Those low yields are critical for both the public and private sector -- financing upwards of a trillion dollars a year in corporate borrowing as well as helping to contain financing costs for the government's $17.5 trillion debt. But after nearly five months of a decline in yields that caught market participants almost completely off guard, talk is increasing that inflationary pressures are building and that yields may begin to rise in a way that could put the Fed behind the curve of market forces. That could help undermine the position of a central bank that badly needs the market's confidence if it is to have any chance to unwind a nearly $4.4 trillion balance sheet and a historically lengthy time period of basement-level interest rates.