A trader should know that the Fed can set short rates wherever it wants but the market sets long ones. Bond vigilantes will demand an inflation premium and push long rates above the rate of inflation. This happened in dramatic fashion during the Carter years and less so under Clinton.
Disagree with your premise and your conclusion.
This trader knows that what you described is true of an actual market.
What we have now is a manipulated system, where the Congress spends a trillion more than it takes in every year. It creates bonds - not at market rates - but at low crony rates that no other investor is willing to pay. If they were, the Fed would not be forced into buying the paper.
In a real market, this would be true. In a real market, prices are entered into freely, by independent sides of the transaction, each acting in their own perceived best interest. We no longer have this.
Once the government and the Fed colluded to drive interest rates down and keep the government floating, using quantitative easing, they eliminated any standard of a risk free rate of return. If there is no certainty of the risk free rate of return, everything else is imaginary. the entire system is now skewed.
This is where we are. In fact, the actions of the Fed have driven both short and long interest rates downward.
The Fed has also acted to drive interest rates to nothing in the banking system. They have effectively stolen hundreds of billions of dollars from retirees.
Currently, the Federal government borrows 46 cents for every dollar it spends. Borrowing continues to grow. The budget continues to grow. It will continue until the amount of the national budget dedicated to paying interest on the national debt is no longer sustainable. We are being squeezed between mandatory spending and interest repayment. Eventually, there will be no discretionary spending and no one to buy the debt. When? Who knows how long you can control the game when you control the creation of money and the laws to extract taxes at every level. History is against the bet that it can happen forever.
http://www.heritage.org/~/media/875FE6DD75DE4574ADD023441989C5A8.ashx - for a picture
best.