In one week, and the curve straightened out. What we are looking at is the Fed preparing for much larger deficits as growth in Q1 slows to less than 1%.
Interest rates are going up because Congress will likely raise the debt ceiling enough to cover bailout costs. They are likely to lose a third of their revenue during a Q1 down turn, raising government rates and mortgage rates.
Out problem? Every firm or household is under obligation to keep the Swamp solvent, which over rides any other financial rule.
The Fed will, and does, allow price distortion. Look at its recent history these past few weeks. First, Q3 is fine with 2% nominal consumer price hike, then finance and Trump freaked out about the stock index, starting the easing process. Then came government shutdown fever and the upcoming March budget.
Rather than look at one price index, the Fed looked serially at three, including the government price index. Rather than force government to stay at 2.5% on the ten year, the Fed goes along with the expanded debt.
The Fed needs to get a representative sample of actors from all three indices, and have them meet in a fair traded pit of depositors vs borrowers. The the Fed makes the tree trunk round and hologram works, prices everywhere seem linear.
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