Tyler Cowen writes,

I don’t think I ever wrote this view up, but I was of the same opinion nonetheless.

He refers to a post by Paul Krugman arguing that the Fed’s purchases were not what was holding bond rates down. Cowen notes that this week’s rise in interest rates increases the probability that they were wrong.

I would add myself to the list of economists who have some ‘splainin’ to do. I am always willing to be counted among those who doubt the Fed’s power over interest rates, especially long-term real rates. By the way, Scott Sumner used to say that a rise in long-term interest rates could be a bullish indicator. Would he say that now? UPDATE: No.

Or, take Knut Wicksell. He’s not around to defend himself, but I interpret him as saying that the real interest rate will tend to move in the direction needed to reach the natural rate of unemployment. The real interest rate only rises if we are in danger of going below the natural rate of unemployment. In what way has that danger increased this week?

I suppose one could tell a story that says that the market respects the Fed’s forecasting ability. Further, suppose that the market’s view of the latest Fed moves is that the Fed has a surprisingly upbeat forecast for the economy, or else a surprisingly downbeat view of the natural rate (meaning that the natural rate is perhaps close to 7.0 percent). That in turn would mean that the market should revise upward the mean of its distribution for interest rates. Note that the drop in the stock market is more consistent with a newly-bearish view of the natural rate than with a newly-bullish view of the economy.

I am not sure that Knut would want to go to the mat to defend that story, but what else has he got? I fall back to the view that financial markets moves are not really subject to interpretation in terms of macroeconomic models.