Doing its level best to maintain dignity

A lion tamer trying to get in the little car with the clowns while lions chase them round and round … An elephant knocks down half the trapeze, Wallendas landing in the crowd … The ringmaster trying to restore order while a troop of escaped monkeys strips him of top hat, red coat and megaphone.

From order to chaos and back to order. The Fed, doing its level best to maintain dignity, issued a hawkish statement post-meeting Wednesday. Very hawkish, and as ignored as the ringmaster above. “Substantial improvement in the outlook for the labor market … underlying strength in the broader economy.”

Fed Chair Janet Yellen has made her call: Unemployment as traditionally measured now below 6 percent, and new claims for unemployment insurance at a super-cycle low, the threat is sudden gains in wages and inflation. She left in “considerable period of time” for zero to 0.25 percent Fed funds, but we know from Fed Vice Chairman Stanley Fischer that “considerable” is weeks to six months.

This was a hair-trigger statement, a profound bet that those traditional measures of the labor market will again be predictive. I suppose the chair has to make that call. Although not tightening yet, the threat itself is a form of tightening, and the market response leads us straight to the chaos.

Only currencies moved on the Fed’s words, the euro and yen resuming free-fall versus the dollar. The mechanism of falling is investors of all kinds selling zero-paying euro- and yen-denominated securities and buying dollar ones, anticipating Fed-hiked yield.

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