Fed vs. the market: 'Tension is fairly evident'

Too much transparency at Fed?

The uneasy marriage between financial markets and the Federal Reserve finally may be on the rocks.

For seven years, the pervasive Wall Street belief was that whatever was wrong with the markets, the Fed could fix it.

But the new-found tether Wall Street has with oil and the increasingly ambiguous commitment the Fed has to backstopping the market has challenged that notion.

Analysts and economists largely viewed the Federal Open Market Committee's post-meeting statement Wednesday as dovish, fueled by nods toward market volatility and expressions of concern that long-awaited signs of inflation remain elusive.

The statement, however, stopped well short of indicating that Fed officials might change course from the multiple rate hikes in 2016 forecast in December's summary of economic projections. The result appears to be a somewhat confused climate among investors, evidenced by Wednesday's sell-off and Thursday's choppy back-and-forth trading climate.

"The tension is fairly evident," Aaron Kohli, a fixed-income director for BMO Capital Markets, said in an interview. "You've got the Fed that's trying very hard to keep some of the hikes this year on the table, and you've got a market that is pricing in just one hike. There are quite a few investors who believe the Fed may be cutting soon. That dichotomy certainly has widened quite a bit."