The Spark

The only certainty is more Fed uncertainty

It's time for a rate hike: Ex-Fed's Fisher

Whatever the Federal Reserve does Thursday, it won't end "uncertainty."

That raising rates will somehow "end the uncertainty" for markets and for the broader public is a claim that has lately become commonplace.

Even Richard Fisher, former president of the Dallas Fed, repeated that on "Closing Bell" Tuesday.

"For the sake of the real economy, get rid of this uncertainty," he said, urging the Fed to go ahead and raise interest rates for the first time in over a decade.

Getty Images

Sure, if the Fed raises rates, that will resolve the uncertainty over the outcome of its September policy meeting. But it will only just set up the next debate: will they also raise at the following meeting? Will they be "one-and-done," as strategists like BTIG's Dan Greenhaus expect? Or will they go every-other meeting? And what is their eventual stopping point?

The Fed can't tell us, because it simply doesn't know. It all depends on the data; on how the U.S. economy holds up amid slowing global growth.

Read More When the Fed raises rates, here's what happens

And because it depends, there shall be debate. Just as there always has been. During the last tightening cycle, there was debate before the first hike, debate over each ensuing hike (would it be 0.5 percent this time? Would they skip a meeting?), and debate over when the rate hikes would end.

There was also massive uncertainty after the first hike over the stagnant behavior of longer-term interest rates, which unsettled investors and was called a "conundrum" by then-Fed chair Alan Greenspan.

What "uncertainty," exactly, is a Fed rate hike today supposed to solve?

"It's a departure point, and it reverses the course, and it's the beginning of normalization," Fisher said Tuesday.

Or, as Paul McCulley, the former chief economist at bond giant Pimco, put it last month on "Squawk Box":

"It's a valedictory. 'We did it.'"

Read More McCulley to Fed: No more excuses, declare victory

But there is every reason to be as wary of "Mission Accomplished" moments in monetary policy as in foreign policy.

Plenty of other central banks have already had to turn an embarrassing about-face in recent years, reversing rate hikes they were similarly eager to begin.

As the Wall Street Journal noted Monday, "more than a dozen banks in the advanced world" have tried to raise rates in the past seven years. "All have been forced to retreat," including central banks in Europe, Sweden, Canada, Australia, and Israel, whose rate hikes were begun by now-Fed vice chair Stanley Fischer.

These reversals, interestingly, themselves have become one of the arguments for the Fed to hike; that it will then give the central bank room to slash rates again if it has to.

The Fed has other tools, however, if it needs to ease policy, and has been using those very tools (i.e. "quantitative easing") for years now.

Read More Wall St now sees a Sept Fed rate hike: CNBC survey

The larger risk is that central banks eager to declare victory by raising rates are repeating mistakes of the past, when monetary policy was tightened too quickly, choking off recoveries and leading to drawn-out economic malaise.

"This is Janet Yellen's moment, and it's also the beginning of the definition of her legacy," Fisher said Tuesday.

Whether that legacy is one of "normalizing" Fed policy successfully remains, well, uncertain.