Well, I guess we can rule out another rate hike in January. That's what economists are saying, not that anyone seriously believed that the Federal Reserve was going to engage in back-to-back hikes after promising that rates would go up only gradually in the months ahead.
With Wall Street off to its worst annual start in history, stock prices have been but one indicator that the economy could slow in the weeks and months ahead. That should give the Fed pause.
Stocks, of course, have not been the only market-based gauge to suggest that both the domestic, and global, economies are weakening appreciably.
Bond market interest rates are moving lower around the world. The yield curve, here at home, has flattened while commodities prices, Tuesday's reflex rally notwithstanding, have fallen to levels associated with a slowdown, or in some cases, recession.
Most important, of late, is that the futures market for the federal-funds rate has begun to "price out" the possibility of another rate hike in March, while some interest rate markets are beginning to "price in" a reversal of the Fed's rate hikes as early as June. I too think the Fed will be forced to send rates back to zero and quite possibly take them into negative territory beginning as early as June.
The pronounced weakness in stocks has been telling. Economically sensitive stocks have led the 2016 decline, with banks, brokers and commodity companies falling farther, and faster, than the overall market. That is not the type of market action that would suggest economic strength in the months ahead.
The Chinese stock market, which is back in bear mode, has also been sending signals that economic growth in the world's second largest economy is weaker than official data would suggest.
Rail-car loadings in China, electricity output and iron ore supplies show that China's industrial output is grinding to a halt. Electricity output, which many view as a direct proxy for the manufacturing sector, is now negative, year-over-year, a downturn not seen at any point in China's recent economic past.
Markets are rebounding Tuesday amid hopes that China will take additional efforts to stimulate its economy. This is another factor that would argue against further rate hikes from the Fed.
As the rest of the world eases, additional Fed tightening would widen the differential between U.S. and other sovereign interest rates, further strengthening the dollar and exacerbating pressure on commodity prices, deflation, U.S. exports and multi-national profits.
That, in turn, would hurt the stock market, setting up a negative feedback loop where a stock market decline would portend more weakness in the economy, which would, again, adversely affect stocks … a vicious cycle where the market affects the economy and vice-versa.
This is a situation the Fed should avoid at all costs, simply because it is a cost the economy can ill-afford to bear. A bear market in stocks would be most unwelcome at this critical inflection point in the economic cycle.
Of course, this correction on Wall Street could simply be a "growth scare" that will reverse itself as more economic data show the U.S. to be more resilient and more resistant to overseas economic weakness than the stock market is suggesting at the moment.
Time will tell. The market is certainly due for an "oversold" bounce. A resumption of the bull market would most likely keep the Fed on course to raise rates several times this year, as Fed Vice Chair Stanley Fischer recently suggested it would.
But if this correction resumes, and turns into a full-blown bear market, it should, and will, affect Fed policy. "Normalization," for lack of a better description, will be on indefinite hold until the markets suggest its safe for monetary policy to return to normal … whatever that means in today's topsy-turvy world.
Commentary by Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street. Follow him on Twitter @rinsana.
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