So, the Fed is talking up inflation at a time when it would seem the greater threat is deflation or prolonged disinflation.  Officially, inflation isn’t anywhere near the Fed’s stated target of 2.0%. While I understand the wisdom of wanting to get out ahead of inflation, and actually toughing that point, this sense of urgency seems a little irrational.  Inflation is barley climbing and parts of the economy, including food prices, are in freefall.

Inflation 101:  Too much money chasing too few goods

Are we near too much money chasing too few goods?  The answer is absolutely not.  Moreover, the M0 Money Supply (liquid cash – assets held by the Fed and psychical currency in circulation) has continuously been in decline. 

Yes, the broader M1 money supply is near an all-time high, but I don’t think “near money” is on the cusp of pouring into the economy.

I suspect the Fed is working on a multi-month approach to prepare investors for a rate hike, but it’s not happening this month.  As for the market’s reaction, it’s even more about the Fed making an ill-timed move rather than a mere 25 basis point rate hike.   Despite the ham-fisted approached and missed windows for clean hikes missed by the Yellen and the Fed, I cannot believe they are going to be stupid enough to hike rates with the resent stream of subpar economic data.