The recent decision by the Federal Reserve to raise interest rates for the first time in over four years was widely anticipated and did not, initially at least, elicit much of a reaction in financial markets.

Indeed, most commentators pointed out that it was one of the most widely anticipated rate rises in years and that bond markets had fully priced in the move.

Nevertheless, many analysts were moved to argue that the 20-year bull market in bonds had now drawn to a close, particularly as rates are expected to rise in virtually every major financial centre over the next few years. Rising short-term interest rates have direct consequences for bonds and indirect implications for just about every other asset price.

Financial markets are a bit like golf: they forever humble the most professional of forecasters. Commentators who declared that bonds were now destined for a secular bear market got a shock when fixed-interest markets rallied in the wake of surprisingly weak US employment data.

Grand statements about major shifts in asset prices should always be made with care and humility.

The Anglo-Saxon countries have led the way on rate rises, with the Bank of England in the vanguard. As a result, house prices are now coming off the top in Britain and elsewhere (notably Australia).

Rising rates in the English-speaking world are a natural consequence of economic buoyancy, if not outright economic booms. But even in the slow growth part of the world - the euro zone - markets are now pricing in a rate rise by the ECB by the end of the year.

European interest rate futures suggest that the hard men of Frankfurt are likely to raise rates by a full 100 basis points (jargon for one percentage point) by September of next year, despite high and, in many cases, rising unemployment.

That implies a full 50 per cent rise in the current level of European interest rates - people sitting on large variable rate mortgages beware.

The forecasting of short-term interest rates and bond yields is conducted on a global scale by an army of professional, highly intelligent analysts. All such forecasts require a detailed guess about the likelihood of many economic variables, not least inflation. The higher your inflation forecast, the higher your interest rate forecast.

But, as many studies have shown, most if not all such forecasts are not just usually wrong, they are always very wrong.

In Britain, economic forecasting has fallen into such disrepute that very little publicly-funded crystal ball-gazing now exists. Not so long ago, forecasting think-tanks were amply supplied with funds from the public purse but nowadays the government doesn't bother.

Forecasting within the UK Treasury used to be well-resourced, high-profile and high-prestige but today it is merely a job that somebody has to do and is considered a career backwater. The government now largely leaves the private sector to get the forecasts wrong. The Bank of England has eschewed "point" forecasting altogether and now publishes only wide ranges of possible outcomes for the economic variables that it is interested in.

But forecasts exist because we couldn't do without them. It would be more accurate to call them assumptions, since the use of the word forecast implies a degree of scientific precision that is simply beyond the tools that we have available to us.

The very wide range of forecasts for the path of interest rates over the next few years is testament to the simple fact that we really don't have much of a clue. Without exception, we all expect higher interest rates but after that there is little consensus.

And it is not unheard of for forecasts of the direction of rates to be wrong: a true contrarian would now be expecting interest rates to fall next year.

Given the extraordinary degree of uncertainty surrounding any interest rate expectation, it is reasonable to ask about the role that bonds should play in any investor's portfolio.

As I have suggested previously, bonds perform two main functions. First, under most circumstances, they offer a higher degree of certainty for the shorter-term investor: anybody who needs money over, say, the next five years, should hold a "high" proportion of his assets in short-term deposits and bonds.

Second, and relatedly, bonds act to dampen the overall volatility of a given portfolio. The higher the bond content of your portfolio, the less it will be prone to the gyrations in values that equities can deliver.

Are circumstances "normal" at the moment? If we have indeed entered a new bear market for bonds, thanks to the forces that will drive short-term rates higher, should we all be selling our holdings of fixed-interest securities? And if bond yields are heading up, what does that mean for our investments in other assets?

Anyone who thinks that the inflation genie is out of the bottle should liquidate their holdings of bonds and equities and hold most of their money as cash, with perhaps a slug of commodity- related assets.

In such a scenario, the ultimate peak in short-term rates is going to be a lot higher than anybody currently believes and economic growth will have to be brought to a juddering halt.

Inflation is as big a problem for equities as it is for bonds: those stalled economies will kill profits growth. For regions that didn't have much growth to start with, like Europe, this will be an unmitigated disaster.

For what it is worth, I think this outcome is extremely unlikely. In terms of the necessary "touch on the brakes" that central bankers are now applying, I suspect that bond markets have done much of their work for them.

Nowhere is this more apparent than Australia, where rising long-term interest rates have been a prime driver of falling property prices.

The efficiency and impact of bond markets is much greater than ever and, if my hunch is right, the forecasting community may be surprised by the limited nature of the next interest rate upswing. In which case, contrary to virtually all current market analysis, bond prices won't have to fall much further before fixed-interest securities once again become a buy.

Indeed, many pension funds should be raising the proportion of assets held as bonds, as should older individuals who currently hold high equity weightings in their portfolios.

Then again, I guess such thoughts reveal me to be just another forecaster.