NEW YORK (TheStreet) -- Twenty-five-year-old bond traders need to be reminded why the Federal Reserve started its zero interest rate policy in December 2008. A lot has changed since they were freshmen in college.

The recent bond rally and stock bust over the past several weeks saw the 10-year Treasury note yield touching 1.87%, iShares 7-10 Year Treasury Bond ETF (IEF) - Get iShares 7-10 Year Treasury Bond ETF Reportor iShares 20+ Year Treasury Bond ETF (TLT) - Get iShares 20+ Year Treasury Bond ETF Report, and the 2-year Treasury note, iPath US Treasury 2-year Bear ETN (DTUS) - Get iPath US Treasury 2-Year Bear ETN Report or iPath US Treasury 2-year Bull ETN (DTUL) - Get iPath US Treasury 2-year Bull ETN Report, yielding 0.25% on Wednesday. That might make you suspect there is a lot of data suggesting the Fed must shelve its plans to end its third program of bond buying program, quantitative easing, better known as QE3.

Figure 1: The unemployment rate has been falling by about 0.1% per month in 2014 and is below the unemployment rate when the 0% interest rate policy started.

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Source: St. Louis Federal Reserve

The unemployment rate hit 10% during the Great Recession, but after six years of zero interest rate policies it is below 5.9%. That is the lowest unemployment rate since before the zero-rate policy started. Unemployment has been falling by about 0.1% per month for the last year. If present trends continue, that indicates that the Fed will hit its 5.4% unemployment rate target in February 2015. At the ends of QE1 and QE2 -- March 2010 and June 2011 -- the Fed was nowhere near a 5.4% unemployment target.

Figure 2: The Fed has had no trouble hitting inflation levels above 2.0% since the Great Recession began.

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Source: St. Louis Federal Reserve, Oxriver Capital

One of the myths of the current bond bubble is that the Fed will have a lot of trouble hitting the 2% inflation target, because of the after effects of the Great Recession of 2008-2009. Yet, as you can see, the 12-month increases in the inflation rate, CPI-U, have been over 3% for substantial time periods since the 0% interest rate policy began.

In no month, has the 12-month inflation rate been below 1%. Thus, the feared debt-deflation has not occurred even during the depths of the recession. It is unlikely to be a legitimate concern in 2015. The University of Michigan surveys consumers about their inflation views. At last reading they expected 2.8% inflation next year. On average, that reading overstates the next twelve months' inflation by 0.3%. Thus, that forecast is probably consistent with inflation of 2.5% over the next 12 months.

Figure 3: The dollar rose much more during the bull market of the 1990s. Today's dollar rise is very modest by historic standards.

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Source: St. Louis Federal Reserve

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One of the stories for why the bond market has started accepting such low yields all of the sudden is that the rise of the dollar is pushing down inflation. Yet, from 1995 to 1998 the dollar index rose from 90 to 120 or about 33% percent while stock market rose by 20% plus per year and the Fed set Fed funds targets at between 4.75% and 6%. This year the dollar index is only up 4% since the start of the year. That is a puny rally compared to other time periods and is unlikely to significantly impact inflation as it stands now.

Other measures of the labor market also point to a strong and improving job outlook.

Figure 4: Non-farm payrolls have been increasing at a strong 200,000 for the last several years.

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Source: St. Louis Federal Reserve


Figure 5:
Jobless claims keep on falling.

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Source: St. Louis Federal Reserve

The drop of jobless benefit claims may have helped the stock and bond markets realize that there is little or no data to suggest a slowing U.S. economy right now. While a coupleregional Fed presidents said they would be willing to discuss pausing or restarting QE infinity, neither said that was the expectation or the most likely scenario. They both said, in so many words, that more QE would depend on data that is more pessimistic than they have seen thus far. St. Louis Fed President James Bullard's comments were the most interesting because he is seen as an inflation hawk and his comments coinciding with the market turnaround -- SPDR S&P 500 ETF (SPY) - Get SPDR S&P 500 ETF Trust Report, Vanguard Five Hundred Index Fund (VOO) - Get Vanguard S&P 500 ETF Report, iShares Core S&P 500 ETF (IVV) - Get iShares Core S&P 500 ETF Report, iShares 7-10 Year Treasury Bond ETFand iShares 20+ Year Treasury Bond ETF.

His comments appeared to have the effect of calming markets. Further, after his comments, bond market prices moved closer to levels implied by the FOMC's Fed funds interest rate forecast of 1.375% at the end of 2015. Moreover, what was ignored was that his rate forecast was unchanged based on the larger interview.

The market prices of the 2-year T-note and Fed Fund Futures are a long way from the Fed's expectations. The Fed's forecast should put the 2-year yield, iPath US Treasury 2-year Bear ETN or iPath US Treasury 2-year Bull ETN at closer to 100 basis points according to Oxriver Capital's analysis, than the 38 basis points it was at on Friday. That means the bond bubble is still in full swing, and many twenty-something bond traders may be out of work when it bursts.

My advice to 20-something bond traders is to take the GMAT. There is a great education to be gotten down in Cajun country, and it beats applying for unemployment benefits!

At the time of publication, the author is long DTUS and VOO.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.