In recent writings, I have laid out the strategic case against the Federal Reserve tightening this week. There is a compelling tactical case as well.

Monetary policy should seek to avoid major surprises. Right now the fed funds futures market is assigning only a 28 percent chance to a September tightening. In the last 20 years, the Fed has never tightened without guiding the futures market to at least a 70 percent chance of a tightening. So a move now, given how expectations have been managed, would be an extraordinary shock at a highly uncertain time.

To find a relevant precedent, one has to go back to 1994, when the Fed raised rates by 25 bps despite the market assigning only about a 30 percent chance (around what is expected now) of a tightening. What followed was dubbed by Fortune Magazine as the “Bond Market Massacre.” Over the ensuing nine months, the interest rate on the 10-year bond rose by 2.2 percentage points — nearly twice as big an increase as any subsequently — with mortgage rates rising in tandem. Volatility spiked dramatically across the world, and Orange County had the then-largest municipal bankruptcy in U.S. history. Mexico and Argentina moved towards financial crisis.

There is a point here quite separate from the issue of what monetary policy should be. Communication is a key part of the art of monetary policy. The Fed for a generation has caused its tightening moves to be anticipated because it learned from the 1994 experience. The same approach should be taken going forward. Even if it were otherwise a good idea to tighten, no adequate predicate has been laid for a rate increase this week.