This post is from @interestarb . You should read it. I don't ask many peeps for their opinion about things, but I definitely ask him !
What the U.S. Federal Reserve may fear most at this point in time Prior to the May Employment report, many economists, financial market participants, and other economic/market watchers (aka financial market journalists) considered the idea of a July rate hike in the U.S. as ill fated or simply unwarranted. One small 25bp move geared toward normalcy, that for some had already been delayed, has little chance by itself to upset the current U.S. apple cart in terms of domestic consumption and business. However, years of Zero Interest Rate Policy (“ZIRP”) have fostered a highly leveraged fast paced trading (not investing) community ravenously pursuing profits that could start the ball rolling. With a sometimes dangerous heard mentality, and get me out first mindset that can easily overwhelm and trample the true mechanics of market place price discovery. This and the memory of the “Taper Tantrum” is what the Federal Reserve may now fear most, the markets ability to overreact and create havoc. It’s not about the actual underlying U.S. economy operating on its own merit, but how it may be impacted by possible financial market upheaval overly sensitive to the winds of monetary policy. At the same time, the Fed’s forward thinking must also incorporate the interconnectedness of many global factors that could spillover with the potential to have domino like effects. The Federal Reserve seems destine to continue the waiting game, to live in a world where it needs all the planets to be in a line to ever so slightly alter it’s current policy stance. Unlikely “to boldly go where no man has gone before”, the question now is how much longer will the Fed be content to err on the side of over accommodation and live in fear of its own shadow. Some Members have hinted at above target inflation acceptance, but with a 4.7% UER they would clearly be behind if that were to occur. Again, there are participants who may find that acceptable after years below target. Things may be about to get a tad more interesting.