Wells Fargo's latest "Portfolio Manager Commentary" says, "At its current pace, the Fed's asset purchases will end sometime in the fourth quarter of 2014, and if "considerable time" really means six months, as we have been told, then we are looking at our first rate hike in the April–June 2015 time frame. So, how does that square with the committee's forecast for a 1% federal funds rate at the end of 2015? In the past, others have noted a disconnect between the FOMC's economic and federal funds forecasts, so this could just be a similar situation. Alternatively, it could also mean that since the policy of optimal control not only calls for rates to be lower for a longer period of time than other models might call for, there could also be a more rapid rise in rates once policy shifts. Market participants who are expecting a gradual tightening on the order of 25 basis points (bps; 100 bps equals 1.00%) every other meeting or so may be surprised at the magnitude of rate hikes when they do occur, and portfolios positioned for a gradual increase may find themselves terribly out of sync with market conditions. But who can really blame them? For a group that has promoted transparency in an effort to provide clearer forward guidance for investors about its monetary policy, the Fed left the waters very muddied after this meeting. Is there a surprise rate spike in store? While interest-rate movements are not solely dependent on central bank intentions -- at least not yet -- and market forces still determine the path of interest rates, those forces are not exclusively influenced by the invisible hand. Regulatory activities can create incentives that alter the behavior of market participants and affect activity and pricing, sometimes wildly. One market that is ripe for such a disruption is the federal funds market."

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