Why the Fed didn't let HY market problems prevent a hike

One of the reasons offered as reason for the Federal Reserve not to hike was the High yield market developments, but it did anyway. It made the right decision in our view. Scotiabank offers several reasons:

• Much of the recent weakening was concentrated on a handful of issues and rather specific to one fund. These challenges have dragged the indices lower but the feeling is that this may have been due to temporary portfolio re-balancing effects.
• Even if the challenges are more widespread over the cycle ahead, the Fed can't save the high yield space. The surge in issuance over recent years is now in the day of reckoning phase as the credits that got funded are suddenly faced with questioning over why markets lent so much to them in the first place and especially in a very different commodity price environment for many of them. 
• Energy's sizeable weight has been significantly behind the drop in the US high yield index. In fact, so much so, that removing it yields a much flatter overall high yield picture (see chart: Bloomberg USD High Yield Index: by key sector). This is a sector-specific adjustment whereas monetary policy is crafted toward broader policy goals.
• So far at least, these concentrated challenges in the high yield space have had fairly modest effects on the broad market appetite for risk. Even at its recent low point on December 14th, the S&P500 was about 4% lower than it was at the start of the month. That's a flesh wound; not a correction by any stretch, and stocks have since recovered most of that decline. 

Finally, the Fed had multiple tools to assuage bond markets while hiking and it successfully implemented them.