Is fiscal policy inflationary? Just ask the Fed

Long-term interest rates snubbed their nose at the decline in the dollar from 2002 through to 2004. They ignored the rise in the fiscal budget deficit, which hit a record $413bn last year. They even defied the Federal Reserve, which has raised overnight rates over the past 15 months from 1% to 3.75% last month. Now, with the US government embarked on an overt spending spree, whatever it takes, to rebuild New Orleans and coastal areas devastated by Hurricane Katrina (not to be confused with the covert spending spree of the last five years), is fiscal policy about to upend the bond market?...