If Fed policy was a fairy tale, the title might be "The Central Bank That Cried Wolf."
Investors have watched in bemusement as Fed officials throughout the past several years have warned that policy would change, only to back down at the slightest sign of turbulence. It now appears the market is no longer taking the Fed's threats seriously.
In a speech Monday, Fed Chair Janet Yellen gave only modest signals that she was reconsidering policy, which just a few months ago was geared for as many as four interest rate increases this year. Nevertheless, a market bracing for a high likelihood of a summer hike now is considering that "we may well not see one," said David Rosenberg, chief economist and strategist at wealth management firm Gluskin Sheff.
"She carries the only vote that really matters," Rosenberg said of Yellen, whose remarks were taken as dovish enough to push along a market rally Monday that carried over to Tuesday.
A June rate hike, thought to be on the table only a few weeks ago, now has just a 2 percent chance, according to the CME's Fed tracker. July has a slightly better chance, with odds increasing through the year.