The Federal Reserve may be trying to project a coherent vision on what it expects its policy on future rate hikes will be, but the market cannot seem to agree on what version of the Fed it wants to believe. Does it want the Fed to be hawkish or dovish? Does it want the Fed to taper and begin raising rates sooner than expected, or put it off because inflation is “transitory” as the Fed seems to imply? There is evidence the market is becoming more comfortable with the Fed getting a bit more hawkish. A couple months ago, traders were concerned the economy was going to be so strong that the Fed would be forced to taper later this year and raise rates in early 2022, sooner than anticipated. That concern was stoked today by a statement in the minutes of the last Federal Reserve meeting, which noted that “a number of participants suggested that if the economy continued to make rapid progress toward the Committee’s goals, it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases.” While bond yields moved up modestly on that statement, the stock market barely moved, a sign, some say, that the market is getting comfortable with the Fed “thinking about thinking about” doing something down the road.
Source: CNBC
