Authored by Peter Tchir via Academy Securities,

Yesterday, Bullard gave markets a serious scare.

From the moment he spoke, stocks gave up any attempt at a rebound, long date bonds continued to drift lower post their CPI plummet, and the market went from pricing in 1.3 hikes at the March meeting, to 1.8 hikes!

The only “disagreement” in the market chatter seemed to be whether we were getting 50 bps or more at March, back to back 50’s, or even an inter-meeting hike. The last time the Fed did an emergency hike may have been before even I was born, which is saying a lot (nah, it was within my lifetime, but still a long time ago).

The questions I have:

• Wasn’t a 7% CPI print known at the FOMC’s January meeting (which was only 2 weeks ago)? It seems like it should have been.
• Why didn’t the Fed stop buying bonds at the last meeting? The market was reasonably prepared for that.
• Is Bullard trying to soften the market for the Fed,  or is his opinion an outlier? (which has been the case quite often).
• If the Fed was on the precipice of needing an emergency hike, why didn’t they stop buying bonds at the meeting? (ok, I kind of asked that question twice).
• The ‘forward’ looking reports seem to indicate an easing in inflation pressures, so why are we so focused on a backward looking data point?

I wish I knew the answers to these questions, but my best estimate is that the market heavily overreacted to one person’s comments.

It is certainly going to make it more difficult for risk assets to rally, but how quickly the market latched on to the ‘emergency’ hike narrative, strikes me as a market that hates bonds and risk too much.

[ZH: Notably, Bloomberg is already out doing damage control with this article…]

Federal Reserve officials are in no rush to raise interest rates prior to their scheduled policy meeting next month, nor is a half percentage-point move in March yet likely, despite a bigger-than-expected jump in consumer prices that stoked speculation about such options.

And CNBC also pushing back…

Several Federal Reserve officials, both privately and publicly, are pushing back against calls by St. Louis Fed President Jim Bullard Thursday for super-sized rate hikes, and instead suggesting the central bank is likely to embark initially on a more measured path.

Amid all this backsliding, we remind readers that according to The Taylor Rule, The Fed is currently 1075bps ‘too easy’ considering unemployment and inflation data. So maybe, a 50bps hike now and 5 more before year-end makes sense after all?