Except it does.

What has just occurred could have a profound impact on our future.

It has the potential to delay and possibly derail the economic recovery now underway across the developed world.

And, if it continues, it will wreak havoc with global stock markets during the next few months.

It also is a direct assault on the power and authority of central banks, including our own Reserve Bank.

For the past year, across the globe, they've acted in unison, throwing everything at their disposal at an unseen enemy in a desperate effort to stave off the most serious economic collapse in more than a century.

Suddenly, they've been left bruised and bloodied, run down by a growing mob that has flagrantly ignored their predictions and overturned their view of the world and our future.

Rate expectations

Hands up all those who thought the Reserve Bank of Australia set interest rates.

If that's you, you're in good company. It's a common misconception and one our monetary mandarins have been keen to perpetuate.

Every month, we read the breathless reports of the ruminating inside the boardroom at Martin Place and how the decision, even if there wasn't one, was arrived at.

A mere hint that a change may be in the wind usually sends markets into a tizz.

When our banks raise rates on their own or refuse to pass on an official cut, there are cries of foul play from the media, along with business and consumer groups.

Central banks, however, don't have absolute control.

An interest rate is merely the price of money. It's determined by supply and demand for cash on global money markets and occasionally other unexpected factors override central-bank controls.

Central banks are/where the feudal lords of money markets.

They're big players and they almost always get what they want. And they employ a range of powerful weapons to ensure they do.

They not only set an official cash rate — the rate they charge commercial banks for loans — but in more recent times have waded directly into bond markets to buy up huge amounts of government debt and even mortgage and corporate debt to muscle rates down.

They've conjured up that cash (Quantitative Easing) then poured it into the system, lifting supply and depressing the price.

America's central bank, the US Federal Reserve, has bought around $US7.5 trillion ($9.73 trillion) worth of debt in recent years, in a wild and unorthodox attempt to depress interest rates.

With such enormous reserves, for the past 20 years most investors have adopted the age-old adage, don't fight the Fed.

They've now taken the fight to the Fed.

Rates won't rise until they do

Central bankers like America's Jerome Powell, our very own Philip Lowe and their counterparts from Japan, Europe, Canada and the UK have for the past month been on message.

Interest rates would not rise for years, they've decreed in unison.

The economy is in the early stage of recovery but we have a long way to go.

But money market traders, who buy and sell the $US90 trillion odd worth of government debt swirling around on global markets, decided they were wrong. All of them.

As new US President Joe Biden finalised his plan to splash around $US1.9 trillion on a stimulus package — the biggest on record — the market decided that all this stimulus, both monetary and fiscal, could only lead to one thing; inflation.

And that meant central banks would have to abandon their ultra-loose interest rate policies earlier than expected.

The trickle of selling on bond markets suddenly swelled.

By late last week, it was a tsunami.

Bond prices collapsed forcing the yields — market interest rates — to soar.

The battle was on.

You call that a rate hike?

Last November, if you bought an Australian government 10-year bond (essentially a government IOU) on the open market, you'd have been lucky to get an interest rate of 0.8%.

A fortnight ago, you could get a touch above 1.2%.

By Friday, it was just shy of 2%.

To put that into perspective, that's the equivalent of almost five official RBA interest rate hikes in four months, with two and a bit just last week.

You'd expect rates to move higher as the economy recovered.

But it was the speed and the severity of the movements, the likes of which haven't occurred for decades, that stunned onlookers.

If sustained, it will lead to higher borrowing costs because banks will have no option but to pass those rate hikes on.

Should Federal Treasurer Josh Frydenberg need to raise more debt, to extend JobKeeper for instance, he'll suddenly be confronted with a much higher bill.

Then there are the follow-on effects.

Stock markets hate higher interest rates.

Suddenly, the boom that has been underway ever since central banks cut rates to zero last year has been knocked sideways.

Our market hit the skids on Friday as Wall Street tumbled Thursday and took another hit Friday night.

Companies such as Tesla which produce little profit now but promise big returns down the track are the ones most at risk from a rise in longer-term interest rates.

Tesla has lost a quarter of its value in the past month. The other big tech stocks also are reeling, although there was some respite Friday.

On our market, any company that has not lived up to earnings expectations has been smashed.

A2 Milk last Thursday dropped 16% following a disappointing half-year result.

Buckle up for that turmoil is about to get a whole lot worse if money markets continue their rampage.

Is inflation really a problem?

Not yet. And maybe it won't be.

That's the crux of the fight between central banks and financial markets.

It's true that prices are rising now, particularly commodities such as oil, copper and iron ore.

But we are coming out of a terrible recession. And what financial traders are ignoring, or forgetting, is that prior to the pandemic, it was a lack of inflation that was the major economic scourge of the developed world.

Our own RBA failed to fire up inflation for four years and it cut rates three times in the months BEFORE the COVID crisis.

True, asset prices such as real estate have been soaring.

But is reak estate purchases are funded by debt and, with rates at zero, buyers have flocked back into the market because they can afford the repayments.

It's consumer prices that are the problem.

They are funded by wages.

And wages are growing at around the slowest pace in history.

Casualisation of the workforce and the shift of entire industries from the developed world to countries like China have left millions either unemployed or underemployed.

That won't change any time soon, regardless of Biden's stimulus package.

But can central banks convince money market traders of this? So far, they've opted to pull back and let the looters run wild rather than risk the potential humiliation of a head-on confrontation and coming off second best.

This week, however, will be crucial.

America's February job numbers are out this Friday night.

US job numbers were horrible in January, with more than 10 million out of work, which cemented Powell's resolve to maintain rock-bottom interest rates.

Traders, however, remain determined to push them even higher if there is any sign of an improved labour market, much to the horror of stockbrokers.

Absent of any sense of irony, or humanity, came this line from one Wall Street commentator on Friday night.

"Without an ugly set of numbers, stocks are in trouble."

Story By | Ian Verrender