Guess what? Tighter monetary policy is already here

Amid a flurry of calls for a crash in the value of the U.S. dollar, something strange has been going for the last two-and-a-half months: The dollar has been on a tear … but to the upside. The dollar's rebound has some very important implications for everything from inflation, to multi-national profits, to Federal Reserve policy.

The dollar has rallied over 8 percent so far this year, with much of the gains coming since the dollar index bottomed out at 80 back in April.

The rebound in the dollar is both good and bad for the economy, depending on your point of view. As it pertains to inflation, and Fed policy, the news is quite good, though a stronger dollar also makes U.S. exports more expensive overseas and cuts into the profits of multinational corporations that sell their goods abroad. By weakening exports, a strong dollar also has the potential slow GDP growth, something that no one is counting on at the moment, and another reason the Fed may be watching the dollar more closely than you think.

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Most importantly, for the moment, is that a stronger dollar works to dampen inflation by lowering the cost of commodities that are priced in dollars -- particularly oil. Broadly speaking, a stronger dollar puts downward pressure on imported inflation and allows U.S. consumers greater purchasing power, which, in and of itself, is disinflationary.

It's most notable in oil, for which consumers shell out a great deal of money. As the dollar has strengthened of late, oil and gasoline prices have tumbled, as have other commodities, like gold, silver, copper and agricultural goods.

As the dollar rallied, oil has fallen from a high of $107, earlier this year, to about $90 today, a decline of nearly 16 percent. Gasoline prices have fallen to the low $3 a gallon range for regular unleaded, the lowest level of the year.

All this means that headline inflation will continue to move below the Fed's 2-percent target, even as the employment data improve. This gives the Fed plenty of leeway to delay a rate hike, since the dollar's rally is putting a lid on inflation and, quite possibly, driving inflation too low for the Fed's liking.

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This is very important. Even if the Fed's employment mandate is being met -- its inflation target is not.

With deflation a real threat from overseas economies, coupled with rapidly weakening economic growth from Brazil to Beijing, the Fed must factor the dollar into its policy-setting equations.

Federal Reserve studies have shown that a sudden rise in the value of the dollar is tantamount to a tightening of Fed policy.

The rule of thumb, used by economists inside, and outside, the Fed is that a 10-percent rally in the dollar's value is roughly equal to a half-point hike in interest rates. In short, while everyone is waiting for that Fed hike next year, tighter monetary policy is already here, whether the Fed is ready for it, or not.

The Fed, examining a variety of factors when determining policy, measures the so-called "shock" value of sudden moves in currencies, commodities, taxes, and other variables, to calculate their impact on the economy.

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The more than 8-percent jump in the dollar means the Fed has essentially already begun tightening policy, just because investors have bid the dollar higher in anticipation of that as-yet-to-come change in policy. The dollar's ascent may ultimately keep the Fed from doing anything at all, for quite some time to come.

With the U.S. growing more steadily than other countries, and U.S. interest rates substantially higher than sovereign yields of similarly credit quality abroad, like Germany and Japan, money keeps flowing into the U.S.

So while Feds funds futures traders continue to wager the Fed will tighten sooner, rather than later, they may be ignoring an important variable in policy: A stronger dollar could easily stay the Fed's hand.

Commentary by Ron Insana, a CNBC and MSNBC contributor and the author of four books on Wall Street. He also delivers a daily podcast, "Insana Insights," and a long-form weekly version, both available on iTunes and at Follow him on Twitter @rinsana.