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Illustration: Sarah Grillo/Axios

The Federal Reserve surprised the market Wednesday with new hints about its timeline for a rate liftoff — and an acknowledgment of taper talk.

Driving the news: Investors were on one hand relieved the Fed may act to keep the market from getting (more) overheated, and on the other skittish about the pending removal of the punchbowl.

Why it matters: The signals point to a Fed that's increasingly willing to contemplate a pullback from the emergency market support that began last spring in reaction to the pandemic. But don't expect these changes to happen any time soon.

What changed: The "dot plot" of Fed member sentiment indicates a median expectation of two rate hikes by the end of 2023, up from zero.

  • Fed chair Jerome Powell acknowledged that this week's meeting of the Federal Open Market Committee is the "talking about talking about tapering" meeting.
  • That means that it may actually begin discussing the appropriate timeline to taper its $120 billion per month asset purchases at its next meeting (July 27-28).

What didn't change: There still won't be any tapering until December or the beginning of next year — at the earliest.

  • The Fed still isn't likely to hike interest rates for years.

What they're saying: "The Fed is still going to be remaining accommodative from a policy standpoint," Don Ellenberger, senior portfolio manager at Federated Hermes, tells Axios.

  • Especially considering the "real" fed funds rate, after accounting for inflation of around 2%, will be negative for the next two or three years, Ellenberger notes.

State of play: Markets went into risk-off mode, with equities declining and the Treasury yield curve flattening somewhat.

  • The market's reaction is probably "a bit of digestion, and a bit of position-squaring," Ellenberger says. After that works its way through the system, markets may very well return to new highs in the short term.

Our thought bubble, via Axios' Felix Salmon: Rates have been at zero for well over a year and will remain at zero for well over a year, which makes all Fed announcements inherently anticlimactic.

  • In a desperate attempt to find something — anything — to seize upon, observers turn to the dot plot and parsing the semantics of "talking." But the big picture remains exactly what we knew it would be: No change to anything.
Here are the dots. Now ignore them.
Chart: Federal Reserve Board

The Fed updated its "dot plot," which tallies where each member expects the benchmark fed funds rate to be at the end of 2021, 2022 and 2023.

Driving the news: The new median dots imply there would be two rate hikes by the end of 2023. This compares to the March dot plot that implied no rate hikes in that year.

  • Stocks sold off and interest rates jumped on the change, suggesting market participants are worried tighter monetary policy is coming sooner.

What they’re saying: Powell explicitly pushed back on this interpretation, saying: "Dots are not a great forecaster of future rate moves. … Dots are to be taken with a grain of salt."

Others former Fed chairs agree...

“I think that one should not look to the dot plot, so to speak, as the primary way in which the Committee wants to or is speaking about policy.”
Janet Yellen, March 19, 2014
“I think you could also retitle this conference 'Why We Don’t Like the Dot Plot.' I think the dot plot is like the advanced level of the video game. If you haven’t been to the first 12 levels, forget about the dot plot.”
Ben Bernanke, Nov. 30, 2016

Go deeper

Federal Reserve will soon ease pandemic-era support

Fed Chair Jerome Powell during a congressional hearing last year. Photo: Stefani Reynolds/Bloomberg via Getty Images

The Federal Reserve hinted Wednesday its full throttle of economic support could start to ease as soon as November (its next policy meeting).

Why it matters: It would be the start of a pivot for the Fed, which unleashed unprecedented measures when the pandemic hit to help rescue the U.S. economy.

Updated 1 hour ago - Energy & Environment

Thousands without power as "hazardous" winter storm lashes East Coast

Satellite imagery of the Northeastern U.S. taken by NOAA on Jan. 17. Photo: NOAA

A major winter storm lashed much of the East Coast Sunday and Monday, causing widespread power outages and disrupting travel over the holiday weekend.

The latest: Authorities in North Carolina confirmed that two people died in a car crash and that they responded 600 vehicle accidents during the storm on Sunday, per the Washington Post.

2 hours ago - Health

CDC director says COVID-19 messaging should have been clearer

Rochelle Walensky. Photo: Stefani Reynolds-Pool/Getty Images

Rochelle Walensky, director of the Centers for Disease Control and Prevention, said in an interview with the Wall Street Journal that the messaging around the COVID-19 pandemic and changing guidance should have been clearer.

State of play: Walensky is being coached by media experts and is planning to have more press briefings by herself in order to ensure that CDC is seen as an independent, scientific entity, rather than as a political one, the Journal reports.