Private Money Lenders do not play by the same rules as the stock market and the Chinese economy. There is no uncertainty and no fear about when - even whether - the Federal Reserve should raise U.S. interest rates.
A lack of interest-rate action – and no firm sign of when to expect it – is playing on nerves at home and abroad.
All eyes are on Federal Reserve Chair Janet Yellen and her colleagues in the Federal Open Market Committee as they navigate uncharted monetary policy waters.
"Uncertainty" is a word that's been floating around a lot recently. It's there in the stock market. It's there in the Chinese economy. And there's certainly uncertainty about when – even whether – the Federal Reserve should raise U.S. interest rates.
In fact, the only certain thing right now seems to be that few analysts are certain about what will happen next month, next year and beyond. Few would have predicted a year ago that recent Chinese stock volatility would shake global markets, or that Beijing's economic interventions and currency devaluations would rock international trade, commodity prices and Chinese demand for imported goods.
A year before that, few would have predicted that the world would be plunged into such a prolonged period of low oil prices, which has been responsible for thousands of job losses and has weighed heavily on the economies of oil-exporting countries.
Drags on the global economy have hit hard and fast, while growth and improvement have been significantly more gradual. And with less-than-positive memories of the Great Recession and the subsequent global slowdown fresh on the minds of millions around the world, the current state of economic uncertainty is giving rise to something even more dire.
"We're in a fear cycle. It's hard to rationally say what happens in a fear cycle," Michael Kelly, managing director and global head of multi-asset at Pinebridge Investments, said in an interview last month with Bloomberg.
Not helping to ease that fear is a Fed that can be seen as, at best, dragging its feet on interest rates out of an abundance of caution. Federal Reserve Chair Janet Yellen, the most powerful figure in a central bank that sets monetary policy for the world's largest economy, specifically cited uncertainty as a deterrent to raising U.S. interest rates in September.
"In light of the heightened uncertainties abroad and the slightly softer expected path for inflation, the committee judged it appropriate to wait for more evidence, including some further improvement in the labor market, to bolster its confidence that inflation will rise to 2 percent in the medium term," Yellen said after last month's Federal Open Market Committee meeting.
But at least part of the problem with these "uncertainties abroad" is that the Fed's interest rate indecisiveness is feeding into international concern, creating a disquieting and static cycle. U.S. monetary policy, with its impacts on variables like currency strength and debt repayment terms, holds global significance. Christine Lagarde, the managing director of the International Monetary Fund, on Wednesday mentioned America's ongoing rate hike saga in the same breath as China's economic turbulence, citing both as hindrances to global stability.
"The prospect of rising interest rates in the United States and China's slowdown are contributing to uncertainty and higher market volatility," Lagarde said during a speech in Washington.
The Fed, subsequently, finds itself in quite a hole: Officials want to hold off on a rate liftoff until the fog of global uncertainty lifts. But Lagarde suggests skies won't meaningfully clear until U.S. monetary policy stops timidly toeing the line and takes its own first step on interest rates.
Lagarde, to be fair, has previously said she thinks the Fed should wait to raise rates until 2016. But she acknowledged the "will they or won't they" saga has generated global confusion and put investors around the world on edge.
"It's hard to know the Fed's mind, and apparently they don't know their mind themselves," Hans Olsen, managing director and global head of investment strategy at Barclays Wealth and Investment Management, said in an interview Monday with CNBC. "You have a picture of the economy that actually is pretty good overall. But if you look at the equity market, the equity market's wheezing a little bit here."
Nowhere has uncertainty been more pronounced than in equity markets. The Dow Jones industrial average has regularly swung by hundreds of points in recent weeks, with investors showing more and more that no one's 100 percent certain what's going on.
"A lot of the traders in the market are saying, 'Look, the uncertainty of not knowing when you're going to move is creating so many ripple effects in the market right now, that it would just be better if [the Fed] gave some definitive direction,'" Bloomberg's Lisa Abramowicz observed earlier this month. "Frankly, people are waiting for what they don't know."
The youthfulness that dominates Wall Street is contributing to market unease, considering the average trader nowadays is only 30 years old. About 30 percent started working on Wall Street within the last five years, according to Bloomberg and salary comparison site Emolument.com, and two-thirds have never seen a full policy tightening cycle before.
That means low interest rates are all many traders know. And they're the ones who will be largely responsible for seeing the market through what is sure to be a long normalization path.
"It's even bigger than just not knowing how to react because you haven't seen it in a while. Nobody's seen [interest rates] come up off of zero before in the U.S. We have no idea," says Tara Sinclair, chief economist at jobs site Indeed.com. "We genuinely don't know. Despite all of the Fed's fantastic simulation models, they've only seen it in simulation."
The Fed has plotted out likely scenarios for what will happen to the economy once interest rates start to rise, but theory is often very different from reality. And the reality of America's current economic condition is that the Fed's goals in the labor market and price growth have not been met. Many thought the employment aspect of the Fed's dual mandate was plugging along smoothly, at least until a disastrous September jobs report threw the labor market's health into question. And core inflation still sits well shy of the central bank's long-term 2 percent objective.
"If you just look at their mandate, there's really no reason to be particularly concerned about moving anytime soon," Sinclair says. "The Fed has been between a rock and a hard place now for many years. They cannot win. They have a mandate that says that they're supposed to be targeting full employment and low and stable inflation, but the data aren't behaving at all in the normal, expected way."
Complicating matters further are the political pressures the Fed faces to provide more clarity on what its officials are thinking. Hawks on Capitol Hill and elsewhere are urging the Federal Open Market Committee to initiate a rate liftoff sooner rather than later, because such a move will give the Fed more monetary policy options in the event of another recession. If interest rates aren't sufficiently elevated in time, the Fed won't be able to meaningfully lower them again to stimulate growth.
"It is really hard for the Fed to forecast what's going to be happening, particularly with inflation and [the] unemployment rate. These things are not easy to forecast a year out," Sinclair says. "At some point, I understand they're going to say, 'We've done what we can do, so we have to normalize.'"
But at the risk of sounding like a broken record – or perhaps an iPod on repeat – precisely when that tipping point will come is still uncertain. The Federal Open Market Committee will next meet in October, but there's not much new data that will come out before then. Most have their eyes set on December, but even that's not set in stone.
In the meantime, the U.S. – along with the world – waits.
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