The market responded with confusion to last week’s Fed statement, which initially was interpreted as more dovish than expected in anticipating only 2 more rate hikes in 2018 sending the S&P spiking, only for a more hawkish narrative to gradually take over, facilitating last week’s violent selloff, as the market focus shifted to the hawkish path of tightening signaled by the Fed dots. Even here though, the dot plot was slightly steeper but hardly enough to cause sleepless nights, even as Jay Powell repeated that the Fed will remain data dependent.

But perhaps the market was mostly taken aback by (lawyer) Powell’s straight-to-the-point talking style, answering questions directly and efficiently, avoiding the coma-inducing verbal diarrhea that defined the press conferences of Janet Yellen (in fact, Powell’s first presser set a record for shortest quarterly news conference by Fed chair), and generally eliminating much of the two-way confusion that markets had welcomed in the past, as it had provided a welcome buffer courtesy of Powell’s predecessors saying so much fluff (and nothing of substance) that it paradoxically “justified” the market’s every opinion (and resulted in such bizarre outcomes as record easy financial conditions amid several consecutive rate hikes).

What does the Fed’s changing narrative mean? According to Deutsche Bank, two things.

First, in analyzing the market’s response to the Fed statement, and especially the aggressive reaction in the rate vol space, Deutsche’s resident semiotic and post-modernism analyst, Aleksandar Kocic – who has for the past year explained virtually every market move in the context of the bi-directional information pathway between the Fed and market, a trope he picked up by reading Lacan (the “mirror stage”), Derrida, Foucault and other pomos – who wrote that last week signaled a more hawkish Fed, “which suggests that monetary policy could become potentially disruptive for markets – after years for hyper-stimulative monetary policy, where everything used to rally, stimulus unwind is taking us into an environment where everything wants to sell off.”

While it is hardly news that the Fed is now in balance sheet roll-off mode, if only until stocks tumble at which point the Fed will resume easing, Kocic warns that this hawkish shift “is now happening at accelerated pace and along the way creating new pattern of vulnerability across the markets.”……more here