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The Federal Reserve has lost control of long-term interest rates, which have soared over the past three months, says Joel Naroff, president of Naroff Economic Advisors and a member of Newsmax's Financial Braintrust Alliance (FBA).
The 10-year Treasury yield has jumped to 2.83 percent from 1.66 percent May 2. The idea behind quantitative easing (QE) was to push long-term rates down, and the Fed was spectacularly successful at that, which helped the housing market recover, Naroff tells Newsmax TV in an exclusive interview....But, "the second that they [the Fed] started talking about tapering, that's when the markets have taken back over," he said. Naroff hopes the Fed doesn't curb its QE, because he doesn't think the economy is strong enough to handle it. 
The problem is that even if the Fed cuts just $10 billion from its $85 billion of monthly bond purchases, the market will be waiting for the next reduction, Naroff says.
"Once you start the process, then the market starts focusing on what comes after," he said. "If you start with 10, then the market says, when are they going to go 25, when are they going to stop?"
So the Fed is now giving way to the expectations of the market, Naroff says. "And that's where they've lost control of the long end." Meanwhile, he is concerned about the strength of the consumer sector. "Retail sales are up [they rose 0.2 percent in July], but really when you look at the details, there was not a whole lot of conviction on the part of consumers," Naroff said. "They're not going out and buying anything."  That's because personal income is stagnant, he says. "Wages aren't even keeping up with the modest inflation pace," Naroff said. "Real earnings are flat to down, and you can't have strong spending and strong growth if wages don't pick up."  As for housing, the July housing starts data was a mixed bag, Naroff says. Overall home starts rose 5.9 percent last month from June. But single-family housing starts dropped 2.2 percent. This decline "is a worry for me because that [single-family homes] is the component of housing which is likely to have the greatest sensitivity to change in mortgage [rates]," Naroff said.
"So despite the fact that the National Association of Homebuilders said that builder confidence is rising, . . . we may be seeing some early signs of problems there." The problems would show up in construction rather than prices, Naroff says. "On the permit data, we're likely to see that begin to soften, because builders are not taking out permits unless they think they can sell the product," Naroff said. "There's not a whole lot of speculative building going on right now."
But home prices are somewhat insulated he says. "Prices will hold up in no small part because there's not a lot of supply out there."