While Gunster also expects the yield curve to flatten, very low coupon rates may not make up for price declines. "It's a different environment now, and that's a wildcard," he said. "The market's reaction to negative returns may cause more volatility."
The recent turmoil in the high-yield bond market is an early indicator of that. The shift in Fed policy is likely to result in more volatile equity markets as well. "Prices are high for all financial assets, which means there will likely be lower returns and spikes in volatility," said Grecsek. "We don't expect major market declines, but it could be bumpy."
An encouraging sign for the market, however, is that the Fed has proved that it's mindful of the bumps. The outlook for monetary policy remains extremely accommodative, as Yellen pointed out several times in her statement. The Fed has no plans yet to unwind its $4.5 trillion investment portfolio, reinvesting the money from maturing long-term bonds back in the markets.