Over the past 18 months, the Federal Reserve (Fed) has raised rates by 525 basis points (bps), its biggest tightening of monetary policy since 1981. Long-term bond yields have also soared (Figure 1). All but two other major central banks -- the Bank of Japan and the People’s Bank of China -- have also raised interest rates sharply (Figure 2). Yet, the U.S. economy continues to defy expectations. It grew at nearly a 5% annualized pace in Q3 from Q2, and U.S. GDP expanded nearly 3% more than from a year ago despite the Fed rate hikes and a sharply inverted yield curve, which is traditionally considered a harbinger of ... (full story)