The removal of inflation expectations – is not what the Federal Reserve sure intended; but it is what they’ve inadvertently accomplished, by monetary policy in recent years. That’s because, absent substantial manufacturing renaissance, and solid as well as sustainable Middle Class economic revival, Fed recalcitrant moves and prolonged (former) rate suppression simply cycled funds to financial assets, and essentially restrained -if not drained- capital from the private sector.

Doing that essentially ‘dampened’ the animal spirits of American business after the initial ’emergency’ stimulus compelled a base, from which recovery started. But it was throttled by failure to remove urgent (by nature temporary) interest rate cuts, and needed to reverse recycled credit activity far earlier in this phase.

Just considering that the last Fed rate hike came ‘before’ the iPhone premiered gives you an idea how deep things slid, and how tepid and agonizingly slow the recovery has been. The irony will be if the Fed is actually ‘right’ even if delayed, because that would imply that an economic resurgence will gain speed mostly by being convinced the economy is healthier. Why convinced? Because data is sliding not improving (aside auto’s and true beneficiaries of low rates); and now the nascent improvement in Housing permits better not hit a brick wall. The Fed in a sense is betting on an historically ‘long cycle’ of recovery while they totally ignore their own statistics which deny the argument we knew they’d make.

The history of Fed moves is ‘not’ that they move early before being tardy, which is what Chair Yellen said today. The history is that what she says is ‘early’ really is about as late as they could delay it. Furthermore, in an Election year, as we’d mentioned the other day, you have more voting members on the FOMC viewed as ‘hawks’, both of which are reasons to get off basically zero. And then there’s a story barely noticed: Puerto Rico says they’ll default likely early next week. Of course that doesn’t fit today’s narrative, so perhaps debt and indirect impacts of the move will have consequences, but those are still skirted for the most part.