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Has the Fed REALLY missed its window?

Janet Yellen
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Janet Yellen

The window to raise rates hasn't been slammed shut—it has yet to creak open.

The panicky selloff in global markets prompted a chorus of observers to bemoan that the Federal Reserve has now missed its chance to raise interest rates.

But financial conditions are just one aspect of the broader economy. This selloff, steep as it's been, is only significant if it begets a global recession or otherwise trips up America's ongoing expansion.

Really, the U.S. has been crawling toward the precipice, finally, of full recovery and higher interest rates.

The biggest risk to that outcome, paradoxically, would be for the Fed to hike rates prematurely. Their window was not "open" to do so last year just because commodity prices hadn't yet fully collapsed and China hadn't yet stumbled.

Why?

There are three keys: employment, inflation, and expectations.

Read MoreThe Fed hike could lower interest rates

First, jobs. While the unemployment rate has plunged, employment gains have been broadly fitful and risk stalling out.

Importantly, the share of people at prime working age who are actually employed has improved gradually but paused of late. That ratio, which was above 80 percent before the 2007-08 financial crisis hit, dropped below 75 percent before recovering to a post-crisis high of 77.3 percent in February. It has since weakened.

Prime age employment

As for inflation, there has been a plunge in the prices of commodities and other goods and a steady increase in the price of many services, like shelter and medical care. That mix, over time, could support business margins and consumer spending. It relies on higher wages, though, which is why continued employment gains are so critical.

And attitudes and expectations among the U.S. public are actually brightening.

Consumers' survey of current conditions just jumped to its highest reading since 2007, according to The Conference Board—and its early-August survey period included significant global market turmoil.

Crucially, the public's reading of labor market conditions is finally on the mend. For the first time since the crisis, either the same or more consumers since the last survey thought jobs were plentiful, as opposed to hard to get.

For a little color, consider too that Chipotle, the fast-casual Mexican chain, is about to host its first "National Career Day" with a hiring spree aimed to add 4,000 workers.

Would a Fed rate hike last year really have helped along the fragile improvement in these three key parts of the economy?

It's perhaps not a coincidence that both broad employment gains and financial markets have stalled since Fed Chair Janet Yellen this spring began emphasizing the likelihood of a rate hike this year.

Of course, people are frustrated with rates stuck at zero—many Fed officials included. And it's quite possible that slowing global growth will persuade the Fed to postpone the hike until, as billionaire investor Stanley Druckenmiller has said, 2017.

If the U.S. expansion can stay the course while other nations struggle forward, however, it may well be worth the wait.