An unexpected interest rate hike could signal a fundamental shift in the Fed's policy approach under new leadership. The new chair may prioritize price stability above all else, establishing a new, more aggressive 'reaction function' that deviates from past behaviors and surprises market participants.
The bond market is already betting that the Federal Reserve will not ignore rising energy prices. When real yields rise faster than inflation expectations (break-evens) during an energy price spike, it indicates that investors anticipate the Fed will tighten policy aggressively rather than 'look through' the temporary inflation.
A decrease in public speeches and interviews from Federal Reserve officials creates an information void. In the absence of official guidance, investors are forced to intuit the Fed's policy reaction function on their own. This speculation fills the vacuum, potentially leading to increased market volatility as different interpretations compete.