Markets Are Witnessing a Yellen Fed at Its Humblest

It finally looks like when Federal Reserve officials say markets can expect multiple interest-rate increases this year, they really mean it. Even noted dove Chicago Federal Reserve President Charles Evans believes that another two hikes in 2017 is possible following last week's boost. Going one further, Philadelphia Federal Reserve President Patrick Harker left open the possibility of more than three total this year.

And yet the Fed has set the stage to be deep into the policy normalization process by the end of the year despite an inflation forecast that not only never cracks 2 percent but has repeatedly fallen short of its mark for years. The threat of inflation, not inflation itself, is what motivates the Fed after deciding long ago in favor of preemptive policy action to stay ahead of the curve.

Policy makers see themselves as dancing on a fine line. Too much tightening and they leave the economy weakened and vulnerable to negative shocks. Too little and they set the stage for inflation that they are unable to get under control. But if the Fed can hold that line, it will extend the life of this expansion and maximize employment over the medium to long run. Lacking precise policy tools, however, requires the Fed to seemingly lurch between hike and halt, leaving it open to criticism.