In fact, a mistake from the Fed might be the only thing investors really fear right now in this, the eighth year of the second-longest bull run ever. The worry is that the central bank might make the same mistake it did in 1994 when it tightened policy at a vulnerable time for the economy, triggering the worst year for bonds since the late 1920s.
"They've left themselves with very little flexibility to respond to any negativity," said Peter Boockvar, chief market analyst at The Lindsey Group.
In a recent Bank of America Merrill Lynch fund manager survey, investing pros listed a Fed mistake as their second-biggest fear.
The FOMC has a two-day meeting this week starting Tuesday. No one thinks the Fed will raise rates at the meeting, but there is speculation that it could signal the beginning of the balance sheet unwinding for September. The committee will allow designated caps of the proceeds it gets from maturing bonds to roll off and will continue to reinvest the rest.
Traders are currently pricing in a 48 percent chance that the Fed hikes again before the end of the year, according to the CME.
Source: Bloomberg Pro Terminal
Junior Trader Stefan Panteleev