The markets were looking for an excuse to turn tail, and this week they got more than one. Spooked by fear of inflation, high oil prices and a revolt by Asia's central banks, bonds, the dollar and shares all headed south, in that order. By the evening of February 23rd, some poise had been regained. But the ease with which things went wrong-albeit just a bit-has left many wondering just how robust is the consensus view that all's for the best in this best of all possible financial worlds. The problems started last week, when Alan Greenspan, the chairman of the Federal Reserve, professed himself puzzled by the "conundrum" presented by the flattening yield curve: the more he raised short-term rates (six times since June 2004, by 25 basis points on each occasion), the more already-low long-term rates fell. Markets don't like it when the man who sets interest rates says he doesn't understand them. The gloom deepened when new figures on February 18th showed that core producer-price inflation was at its highest in six years: could Mr Greenspan be behind the curve on inflation? Bond prices headed smartly down, as investors suspected that the Fed's chairman might see a solution to both problems in lifting interest rates more smartly up.
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