Chart of the day, Fed-tightening edition: QE turns out to be a surprisingly effective way of signalling to the market that rates are going to stay at zero for a very long time. And when you say that QE isn’t likely to stay in place much longer, the market takes that as tantamount to saying that rates are not going to stay at zero for nearly as long as they had thought…. The markets… want to see the Fed putting its money where its mouth is. As a result, when the Fed starts saying that it’s going to taper, the market sees rates rising again. Fed officials are desperately making a concerted attempt to tell the markets that they’re wrong, but history tells us that when policymakers rail against the markets, the markets smell blood and often end up turning out to be right. The markets don’t care about “forward guidance”; they consider the Fed’s deeds to be more important than its words. As a result, so long as the Fed says that tapering is on the horizon, we’re never going to return to the interest rates we were seeing just a month or two ago.