I continue to believe that if interest rates are at relative highs when the Federal Open Market Committee meets again in December, they will not taper. Given the changes in interest rates that have taken place over the last few days alone, I would also suggest that if the FOMC was meeting today, that they would not taper either. The only chance for tapering, in my opinion, is if interest rates pull back to a level that is determined to be more reasonable by the FOMC.
(Read more: By not tapering, Fed actually increased stimulus)
The Fed doesn't want to run the risk of dampening economic activity by increasing interest rates even more by tapering their asset purchases but that also leaves the economy and any asset class that has been supported by the cheap money environment in question. The conundrum pits higher interest rates against tapering in such a way that might actually be a moot point because either of these two could equally dampen economic growth.
If the Fed decides to taper, it will be doing that because interest rates are at a reasonable level and they believe the spike in interest rates that will likely occur when tapering happens will not be as detrimental as it would be if they piggyback on already high interest rates. Tapering will cause interest rates to increase and it will remove liquidity from the system while putting pressure on asset classes that have been depending on the same.
(Read more: Fed's Fisher: QE won't go on forever)
However, if the Fed doesn't taper, it will be because interest rates are already at high levels and they don't want to run the risk of making an already concerning interest-rate environment worse. If the Fed decides not to taper, the higher levels of interest rates that will deter them will also already exist and they will already be acting as a headwind to economic growth and the asset classes that have been relying on cheap money will be affected.
The situation at hand does not provide any way out of a higher interest-rate environment. Quite the opposite: If the Fed decides to taper, it will act as a headwind; if they continue on their course of action and refrain from tapering because interest rates are higher than they would like, that already higher interest-rate environment will already be acting as a headwind to economic growth as well.
(Read more: Yellen more dovish than Bernanke: CNBC survey)
Therefore, for asset classes that are dependent on cheap money, there is no way out immediately. One way or the other, interest rates are going to increase — probably between now and the end of November. It will either happen because the Fed decides to taper or it will happen naturally in the bond market like it has already begun to do. Either way, a higher interest-rate environment will act as an impediment to economic growth, general liquidity, and quite likely the stock market itself.
— By Thomas H. Kee, Jr.
Thomas H. Kee, Jr. is president and CEO of Stock Traders Daily and founder of The Investment Rate. Follow him on Twitter @marketcycles.