Bond Rout Will Push Fed to Tighten

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Low interest rates have shored up the financial system and created a hot housing market over the last two years. But the days of easy money may soon be over, as the Federal Reserve could be forced to quickly correct mistakes it has made in conducting the nation's monetary policy.

Bond market moves and economic statistics strongly suggest that the Federal Reserve will have to raise short-term interest rates far sooner than many investors and economists believe. A hike in short-term rates could cause a selloff in bonds and stocks and a drop in house prices, but failure to act quickly could create even steeper declines. ...