Last week’s employment report raised the odds of a December rate hike considerably and the consensus at this point seems to be that it is a done deal. The employment report was pretty good with the unemployment rate down to 5%, 271,000 jobs added and a pay hike to boot. Year over year average hourly earnings are now up 2.4%, nicely outpacing inflation for a change. Janet Yellen and the other Phillips Curve acolytes will see that as evidence of full employment, of a tightening labor market that will lead to higher inflation. There isn’t much in the way of actual evidence to support that idea but Yellen seems intent on justifying her life’s work by running monetary policy based on the ideas of some defunct economist.

As I outline in my Bi-Weekly Economic Review, the actual economic data released recently has not been all that good. Markets are moving mostly based on Fed rhetoric and expectations of the rate hike. It is almost as if the market is coming to believe that higher interest rates will cause better growth rather than the other way around. I suppose that is possible just as it is possible that the recent rise in wages has nothing to do with the rising minimum wage and the debate surrounding it. And there is a certain attractiveness to economic theories that are so counterintuitive if for no other reason than they often turn out to be right. But I have my doubts. There is simply too much debt piled on the global economy for higher interest rates to be anything but a net negative, at least in the short term.

In any case, I don’t think December is a done deal, far from it. There’s a lot of data between now and then, including another employment report, and the anticipation of the rate hike is already tightening financial conditions just as it did the last time it seemed like a hike was a sure thing. Interest rates aren’t waiting for the Fed to act; bond markets are busy pricing in the rate hike right now. Currency traders aren’t waiting for the Fed; the dollar is about to challenge the spring highs with all that implies for emerging markets and their dollar denominated debts. The rising dollar will also keep pressure on commodity prices and the struggling shale industry.