The Federal Reserve was never hiking rates four times this year. Investors didn't believe it, and now Fed Chair Janet Yellen has all but explicitly acknowledged it.
Indeed, Yellen's blockbuster speech Tuesday assuring that the central bank would go slowly on future adjustments to monetary policy only caught some of the market by surprise. Others realized there was virtually no chance of a hawkish Fed in 2016.
"Central bankers at the Fed bark but they won't bite," Peter Schiff, frequent Fed critic and founder of Euro Pacific Capital, told CNBC.com. "I knew all that talk was a bunch of nonsense."
At their December meeting, Federal Open Market Committee officials indicated that the likely level for their interest rate target by the end of the year would be about 1 percentage point higher than it was at the end of 2015, translating to four quarter-point hikes.
Events afterward were a roller coaster: A violent market reaction lower, dueling public comments from Fed officials alternating between hawkish and dovish, a market rally, then, most recently, strongly dovish language after the March FOMC meeting and then Yellen's speech.
There was a point recently where markets were beginning to buy a rate-hiking Fed, with expectations of a move around midyear and, possibly, a second in December.
After Yellen's speech, the market believes the only likely increase will come in November or December, which are showing respective probabilities of 50 percent and 62 percent, according to the CME. Fed fund futures don't have a full quarter-point hike technically priced in until March 2017.
"Her strident dovishness causes us to lower our projected number of rate increases this year to possibly one in September or even as late as December," Citigroup economist William Lee said in a note that echoed the widely held Wall Street sentiment after the central bank chief spoke.
Yellen's comments reflected a variety of fears, much of them centered on the global landscape.
As David Rosenberg, chief economist and strategist at Gluskin Sheff, pointed out, she used the word "global" 11 times, which was seven more than her speech to Congress in February, and "uncertainty" 10 times, up from three in the last speech.
The remarks came amid a deteriorating economic picture, though a U.S. recession still is considered unlikely by most economists. The Atlanta Fed now expects gross domestic product to gain just 0.6 percent in the first quarter, down from about 2.7 percent in early February. The Atlanta Fed's GDP-based recession indicator shows just a 10 percent chance of recession, though that has not been updated since Feb. 4.
"Whenever a central banker is uncertain, rest assured that the only certainty is that he or she does nothing," Rosenberg said in his daily report for clients. "That was the message from Yellen's speech. Rate risk is off the table, but the reasons for it — a lack of growth visibility — are why investors did not bid up stocks even more so despite her overt dovish tone."
The market, of course, embraced Yellen's dovish tone, though the gains cooled a bit as Wednesday trading continued. The Fed, with its seven years of zero rates and $3.7 trillion worth of money printing, has faced criticism for being too market sensitive. Citigroup's Lee called Yellen's speech "a remarkable transfer to markets of the FOMC's authority to set future policy rates."
For investors, the question ahead will be how long the Fed can continue to keep the market afloat. Ultra-accommodative monetary policy is showing its limits in other countries, and Yellen's narrative that the dovish tone is being inspired by global weakness, not in the U.S., is gathering skeptics.
"If anything, I would say the global problems have subsided since December," Euro Pacific's Schiff said. "The real problem is the U.S. economy. The U.S. economy is weakening,"
Schiff said he thinks the Fed may attempt a rate hike this year, but any efforts at tightening won't last.
"The economy already is in recession," he said. "The question is, when is the Fed going to acknowledge it."