Stop waiting for a rate hike. It's not coming

Janet Yellen
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Janet Yellen

Hey! How's this for an idea. Let's just have the ghost of Lewis Carroll write the Fed statement from now on?

Good God! Have we gone through the looking glass, or down the rabbit hole? Should we take one pill to make us bigger, or one to make us smaller?

The statement issued by the Federal Reserve today is almost an exercise in literary interpretation.

The Fed declined to raise interest rates despite recent improvements in the economy. At the very same time, the Fed lowered the long-run outlook for inflation growth and interest rates.

Three Fed officials opposed today's decision, having called for an immediate rate hike, the largest number of dissenters since 2014.

The Fed now appears to be made up of a variety of characters fit for "Alice in Wonderland." Janet Yellen is Alice and Stan Fischer is the Cheshire Cat, or maybe even the Mad Hatter, given his many head fakes to the markets about the current path of policy.

Why doesn't the Fed just plainly state that in the aftermath of a massive financial crisis, a Great Recession, numerous global weak spots and persistent financial, technological and demographic deflation, that policy is on hold until inflation is persistently at, or slightly above, the Fed's 2 percent target, while acknowledging that a low unemployment rate is simply not as inflationary as it once was?

And further, wage gains that accrue to the lower half of the income distribution is a welcome development which, as in prior periods in history, is not threat, but a support to longer-run economic growth and stability.

In her question and answer session with the news media, Chair Yellen noted that the neutral Fed Funds Rate, the short-term interest rate the Fed uses to guide the economy, won't even approach 3 percent (a full percentage point below what has been considered normal in modern economic history) until the end of 2019.

So, fine. Leave it that way. Let's stop talking in riddles, propounding paradoxes or speaking in tongues.

The economy is partially where it should be and partially not. That is true around the world, as evidenced by a critical change in Japanese monetary policy announced today as well.

While backing away from Negative Interest Rate Policy (NIRP), the Bank of Japan promised to cap 10-year Japanese Government Bond (JGB) yields at zero percent unless and until inflation hits their 2 percent target, something that hasn't really happened in almost three decades.

The world's central bankers simply have to admit that, absent a huge, and positive, shock to the global economy, whether that's large scale fiscal stimulus, a massive increase in productivity, or a revolutionary new technology that drives widespread growth and prosperity, this is where rates will be, at least through the first half of 2016.

They will change when the world begins to fully normalize. Normalizing rates before that occurs, is just like Alice taking the wrong pill at the wrong time and getting stuck on one side of the mirror, or at the bottom of the rabbit hole.

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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