Psych! No hike.

With all the prognostication of an interest rate increase happening from Fed watchers and certain economists, I feel a sense of Deja Vu for previously expected rate hikes in this business cycle.  There was no hike, no easing — just more of the same.  What does it all mean?

It’s the economy, stupid.

We’re not recovering. The Fed can see that in its magic crystal ball of financial and economic data. There are even hints of deflation in consumer prices.  Oh no, perish the thought of things getting cheaper when people have less to spend!

What about December?

Hiking near Christmas would make the Fed the Grinch Who Stole Christmas!  It won’t happen.  The next chance is going to be in 2016.

How did markets react?

The Dow briefly turned negative, the S&P shrugged off some of its modest gains and the US dollar dropped.  Some commodities are gaining — as they should — because the dollar’s strength was pushing them down.  And that strength was built on the rumor of a rate hike.

Where do we go from here?

Expect more jawboning about rate hikes, but a hesitant trigger finger.  I don’t think global markets, let alone our own, can withstand higher interest rates.  Ultimately, however, the Fed is losing credibility here — and fast.