Bond market spooks the Fed

The Federal Open Market Committee (FOMC or Fed) left its key policy rate unchanged following its meeting today, as most market watchers expected. Although there were some reasons for the Fed to raise rates, the main argument against a hike was the sharp rise in bond yields since the last FOMC meeting in September. Higher long-term yields discourage borrowing and spending in much the same way that increases in the Fed's short-term policy rate do, so the bond market is effectively doing the Fed's job of cooling off the economy to bring inflation back down to target. Indeed, if bond yields stay…