(Bloomberg) -- The Federal Reserve proved it’s willing to rip up the playbook if the economic data warrants it. For investors, that means there will be no respite from the turbulence shaking the world’s biggest bond market.

Treasury prices swung wildly over the past week as the central bank raised its benchmark interest rate by three quarters of a percentage point, a move that just weeks earlier Powell had said wasn’t under consideration. It was the Fed’s biggest rate hike since 1994 and followed a June 10 report showing that consumer prices unexpectedly rose at a fresh four-decade high. 

The Fed’s shift in the face of the new evidence underscored a discomfiting reality for traders: The deep uncertainty of the post-Covid economy means they can’t rely on the Fed’s guidance as much as they did during the past two decades, when inflation remained relatively tame and the central bank only tightened monetary policy at a measured pace.

With the trajectory now far less predictable, they’re left at the mercy of the next reports on inflation, the job market and the economy, all of which have the potential to trigger fresh about-faces in the Treasury market. As a result, gauges of future volatility are hovering near the highest since the havoc sown by the eruption of the pandemic in 2020 and liquidity has been strained, exacerbating market moves.

“We are not near the end of a volatile regime for markets,” said Gargi Chaudhuri, head of iShares investment strategy for the Americas at BlackRock Inc. “The Fed has pivoted so many times around their guidance and rates -- and unfortunately that does create unnecessary volatility.”

As Fed officials emerge from their pre-meeting quiet period, individual policy makers will be out pushing their views, potentially providing fresh insight on the interest-rate outlook. Powell will also face two days of Congressional testimony in the upcoming week. 

In remarks at a conference Friday, Powell said the bank’s fight to restore price stability was “unconditional,” with he and his colleagues “acutely focused on returning inflation to our 2% objective.”

Here’s a highlight of some of what traders have on their radar ahead of the Federal Open Market Committee’s next meeting on July 27:

• June 24: The University of Michigan’s update on June’s consumer inflation expectations, a signal of whether the economy is at risk of a wage-price spiral if workers anticipate that inflation will remain heady. Powell said Wednesday that the preliminary long-run reading at 3.3% was “eye catching” and one reason the Fed chose to raise the benchmark rate as much as it did.
• June 30: The Commerce Department’s personal consumption expenditure price index for May. The index rose 6.3% in the 12 months through April, down from 6.6% a month earlier, but was still more than triple the Fed’s 2% target level.
• July 6: JOLTS job openings. Powell mentioned the measure Wednesday and it serves as an important measure of how tight the labor market is. Minutes from the Fed’s June policy gathering will also be keenly scrutinized.
• July 8: The Labor Department’s June reading on average hourly earnings and job creation. Those earnings rose at an annualized 5.2% pace in May, significantly higher than before Covid or when the Fed stopped its last hiking cycle in late 2018.
• July 13: June consumer price index. May’s surprise 8.6% jump was also cited by Powell as a cause for the Fed’s pivot to larger rate increase on June 15. After its release, the Treasury market staged one of its biggest selloffs in decades as traders recalibrated expectations and started pricing in Wednesday’s move.

The Fed’s interest-rate hikes since March have already driven yields on some Treasuries to the highest since 2007, caused credit spreads to widen and sent US stocks into bear-market territory, all tightening financial conditions as the Fed intends. Yet just when they have tightened enough to rein in inflation -- and if that will spark a recession -- is an open question.

Bond Traders Are Declaring the Death of Forward Guidance

Two-year Treasury yields, which were around 0.25% a year ago, surged as high as 3.45% on June 14, only to settle back down at around 3.2% after Powell on Wednesday said that 75-basis-point moves won’t be the norm. Ten-year notes hit nearly 3.5% before ending the week around 3.2%.

“We are seeing three and four standard deviation moves in the two-year yield,” Chaudhuri said. “The lack of stability in the front-end” reflects the “Fed being in a position of seeking weaker growth in order to achieve consistent signs of inflation moving lower.” 

Wall Street Sounds a Louder Recession Call After Fed Rate Hike

Economists are mixed on what the Fed does at it next gathering in July, while swaps traders are pricing in high odds odds of another 75-basis-point hike. The Fed’s target-rate range is presently 1.5% to 1.75%.

“For investors, it likely signals volatility,” said Paul Donovan, chief economist at UBS Global Wealth Management. “The danger here is that adding volatility into financial markets has unnecessary implications for the real economy. And as ever, your credibility – with forward guidance” once cracked “is almost impossible to repair in the short term.”

What to Watch

• U.S. markets are closed Monday in observance of Juneteenth
• The economic calendar:
  • June 21: Chicago Fed national activity; existing home sales
  • June 22: MBA mortgage applications
  • June 23: Current account; jobless claims; S&P Global US manufacturing/services PMIs; Kansas City Fed manufacturing activity
  • June 24: University of Michigan sentiment/current conditions/expectations; New Home sales
• Fed calendar:
  • June 20: St. Louis Fed President James Bullard
  • June 21: Cleveland Fed President Loretta Mester; Richmond Fed President Thomas Barkin
  • June 22: Powell delivers semi-annual monetary policy testimony before the Senate Banking Committee; Chicago Fed President Charles Evans; Philadelphia Fed President Patrick Harker; Barkin
  • June 23: Powell testimony before the House Financial Services Committee
  • June 24: Bullard; San Francisco Fed President Mary Daly
• Auction calendar:
  • June 21: 13- and 26-week bills
  • June 22: 2-year FRN reopening; 20-year bonds reopening
  • June 23: 4- and 8-week bills; 5-year TIPS reopening

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