Here's why the market may be wrong about the Federal Reserve and interest rates - CNBC

Monday's aggressive stock market rally came despite the fears of one Wall Street firm that investors still aren't appreciating how quickly the Federal Reserve could start raising interest rates.

That sanguine view of Fed policy is a mistake, according to Bank of America credit strategist Hans Mikkelsen.

Mikkelsen said the credit market, which sent rates sharply lower despite the hawkish Fed, is misjudging which way the central bank is heading.

That move, "which was 100% unexpected as the Fed has a poor track record selling assets – was a signal the Fed increasingly feels emboldened to exit their super-easy monetary policy stance, even if that means defying market expectations.".

New York Fed President John Williams, in a speech Monday, reflected the consensus view when he said he sees inflation as transitory and Fed policy as appropriate given the current and expected conditions.

But the data and conditions have not progressed enough for the FOMC to shift its monetary policy stance of strong support for the economic recovery," Williams said in prepared remarks.

But Dallas Fed President Robert Kaplan said Monday he is more focused on reducing the pace of bond purchases – tapering – for now, and sees the rates question as one to be answered another day.

"I would rather see us act sooner rather than later on asset purchases, then we'll make a decision down the road in 2022 and beyond about the additional steps that are necessary," said Kaplan, who appeared jointly with Bullard for a discussion presented by the Official Monetary and Financial Institutions Forum.

That would hit the stock market and broader economy, both of which are dependent on lower rates