The global policy graveyard is littered with central bankers who raised interest rates too soon, only to retreat after tipping their economies back into recession or after having misjudged the powerful deflationary forces in the post-Lehman world.

The European Central Bank raised rates twice in 2011, before the economy had achieved “escape velocity” and just as the Club Med states embarked on drastic fiscal austerity. The result was the near-collapse of monetary union.

Sweden, Denmark, Korea, Canada, Australia, New Zealand, Israel and Chile, among others, were all forced to reverse course, and some have since swung into negative territory to compensate for the damage.

The US Federal Reserve has waited longer before pulling the trigger, and circumstances are, in many ways, more propitious. Four years of budget cuts and fiscal drag are finally over. State and local spending will add stimulus worth 0.5pc of GDP this year.

The unemployment rate has dropped to 5pc. Payrolls have risen by 509,000 over the past two months. The rate of job openings is the highest since the peak of the dotcom boom in 2000.

The M1 and M2 money supply figures have switched from green to amber but are not flashing the sort of stress warnings so clearly visible in mid-2008.

Yet it is a very murky picture. This is the first time the Fed has ever embarked on tightening cycle when the ISM gauge of manufacturing is below the boom-bust line of 50. Nominal GDP growth in the US has been trending down from 5pc in mid-2014 to barely 3pc.

Danny Blanchflower, a Dartmouth professor and a former UK rate-setter, said the US labour market is not as tight as it looks. Inflation is nowhere near its 2pc target and the world economy is still gasping for air. He sees a 50/50 chance that the Fed will have to pirouette and go back to the drawing board.

David Fuller's view

I have said it before; the Dollar Index is the key and the Fed is going to have to keep it rangebound if the US economic recovery is to remain on track.  This will not be easy because the EU, Japan and China are all operating their own variations of QE.  One of their goals in doing so is to keep their currencies soft.  

Here is a PDF of AE-P's article.

(Note: Stock markets are discussed in the Friday Audio)