Op-Ed: Why a Fed rate hike now would be a crushing blow to the economy

As Wall Street waits to hear Federal Reserve Chair Janet Yellen 's economic speech at this week's Fed symposium in Jackson Hole, Wyoming, Fed officials have been bickering publicly about how they should conduct interest policy in the weeks and months ahead.

Vice-Chair Stanley Fischer hinted that a rate hike remains on the table for 2016, suggesting that employment and inflation targets have been largely met.

San Francisco Fed President John Williams, however, has been making the case that the Fed needs to alter which aspects of the economy it is targeting in order to achieve maximum, sustainable growth.

In any event, economic policy, both at home, and abroad, needs to become more coordinated, more comprehensive, more coherent and more growth-oriented than it has been in any time in recent memory. And it needs to happen now!

In this cycle, historically low interest rates have already restored the segments of the economy that required the most help after the financial system collapsed in 2008.

Banks, corporations, households and even government, have repaired, to a great extent, their balance sheets while the extremely low cost of capital allowed for growth to emerge from the ash heap of the Great Recession.

GDP has eclipsed it 2007 peak, stocks remain near all-time highs while household net worth is at a record. Auto sales are running flat out and housing is rebounding.

Having said that, the Fed, and all the world's central banks, have thus far proven themselves unable, despite interest rates at zero, or below, to combat financial, technological, demographic and commodity deflation.

Zero interest rate policy, (ZIRP), quantitative easing, (QE), and negative interest rate policy (NIRP), in truth, cannot address the myriad issues depressing domestic and global demand and pushing down prices for many manufactured goods.

Conversely, as the Fed attempts to normalize interest rate policy to combat the presumed risk of rising inflation, the very segments of the economy that are producing the greatest pressures on prices are largely immune to higher rates: Health care costs, tuition and rents and home prices in highly populated areas with little new supply.

Higher interest rates from the Fed will simply not be the proper medicine for structural, or secular, price pressures and could seriously jeopardize what little growth we have.

The problems we face today are more political than economic. The U.S., indeed the world, lacks a credible blueprint for pushing growth back toward its historical potential.

The U.S. economy has grown by just under 2 percent annually in the past seven years, the slowest average annual pace since the 1940s.

If only in the U.S., (preferably it would be a global effort) there needs to be a one-time break with economic orthodoxy that has kept monetary and fiscal policy in separate containers.

This will, of course, cause a great hue and cry across the land, especially among the Tea Party, libertarian and progressive wings of the two major parties, who each distrust one player, or another, in this proposed plan.

The Fed, the White House and Congress need to convene an economic summit, which includes banking and business leaders, to identify how best monetary, fiscal and regulatory policies can be harmonized to bolster economic growth.

And it needs to produce an action plan that moves quickly and decisively forward.

In addition, special attention needs to be paid to the dispossessed, who, since the Great Recession, have not been able obtain the skills required to land one of the 5.6 million available jobs in an increasingly highly-skilled, high value-added labor market.

This effort would be a big lift even in a period of intra-governmental cooperation. But in, the current environment, this is a Herculean task.

However, without Hercules, the economy will face a Sisyphean struggle and may never get that boulder up the hill.

Without the effort, that boulder may very well come back down the mountain and bowl us over for years, if not decades, to come.

If we fail now, irrespective of political gridlock and chaos before us … instead of a lost decade, the U.S., one day, may very well lament the loss of an entire generation.

And we will only have ourselves, and our generation's leaders, to blame.

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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