Fed needs to make a move

At no time in history have governments throughout the world been so involved with economies and markets. Prompted by the financial crisis, central banks have gone "all in" to stabilize their financial markets and resurrect their economies.

"The Federal Reserve has done, and will continue to do everything possible…to assist in restoring our nation to financial stability and economic prosperity," asserted former Fed Chairman Ben Bernanke in announcing the extraordinary money expansion program known as "quantitative easing" in 2009.

Three years later, European Central Bank President Mario Draghi assured a nervous public that he "is ready to do whatever it takes to preserve the euro." Besides the Fed and the ECB, the Bank of Japan and Bank of England are engaging in similarly aggressive monetary measures. And, for the most part, their actions have worked — at least for the short term.

Read MoreStock market just called the Fed's bluff

Faced with an overhang of debt and a slowing economy, Beijing has taken an active role in helping to stabilize China's financial markets. Nothing personifies the tug-of-war between proponents of intervention and believers in free markets than the recent behavior of stocks in Shanghai. Chinese households save nearly 40 percent of their income, or roughly half of their nation's GDP, and have few saving and investment options. Over the last six years, a tsunami of capital flooded into real estate and the last year saw the stock market take off. Stocks listed in Shanghai are the most easily accessible for Chinese households, so a speculative mania has brought a 70-percent return to the stock market over the last 12 months, even after that market's June-July crash. Beijing had been embracing the rally as a catalyst for a confidence boost. However, since mid-June the Shanghai market has plunged by a third, suggesting that the Chinese government is either pulling back its support or that its machinations are no longer effective.

Heavy-handed government involvement in economies and markets carries risks. Former Federal Reserve Chairman Alan Greenspan's aggressive interest-rate easing policy helped fuel both the 1990s tech bubble and the housing bubble a few years later. His successor, Ben Bernanke, followed up with quantitative easing programs and the proverbial "Bernanke put," which implied that the Fed was placing a floor under the market.

QE programs in Europe are fueling housing bubbles on the Continent. Since 2010, the average house price in Norway has surged 30 percent, while Germany and the UK have seen appreciation of 25 percent and 15 percent, respectively, according to a recent Moody's Analytics study. Faced with low interest rates and tepid investment opportunities, investors are having a difficult time finding suitable places to stash their capital.

Some of it is showing up at the art houses. Sales at Christie's hit a new half-year high of $4.5 billion, helped by a new $180 million art record set by Pablo Picasso's Les Femmes d'Alger in May. Meantime, Sotheby's sold a van Gogh, "The Allée of Alyscamps," for $66.3 million. The longer central banks stay involved, the more we will see this type of speculation.

Read MoreThe Fed needs to come clean on rates

Wednesday's market action offered investors a first-hand view of the impact of Fed policy on financial risk taking. New York Federal Reserve Chief, Bill Dudley's assertion that a September rate hike looked "less compelling" sent the S&P up more than four percent, its largest percentage gain since 2011. It's about time the Federal Reserve normalize interest rates. The economy is much stronger than it was in December 2008, the time when the Fed's current target for rates was set.

Commentary by Jack Ablin, the chief investment officer at BMO Private Bank. Follow him on Twitter @j_ablin.