The following chart says everything you need to know about Federal Reserve monetary policy of the last decade:
As you can see core inflation and Treasury yields tracked one another closely up until about 2010 when suddenly interest rates became pinned down at unnaturally low levels even as core inflation recovered to normal levels.
If you look closely at the right of the chart the divergence between Treasury yields and core CPI has become pronounced during 2016. The Fed finds itself between a rock and a hard place; on one hand the Fed is holding rates at unnaturally low levels which serves to punish savers (of which there are many i.e. baby boomers) and ensure that they are unable to keep up with the rising cost of living, while on the other hand economic growth is weak, financial markets remain jittery, and a rate hiking cycle could cause an undesirably strong US dollar. What is a poor Fed to do?
I don't believe there is a right answer to this question. However, one thing is for certain, interest rates are not at "correct" levels and the Fed is losing credibility by the day.
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