At this point, does anyone believe the Fed is willing to do anything that might really spook markets? 

During the 1990s, back in the days of “Maestro” Alan Greenspan, it was widely believed that investors should pay careful attention to every word uttered by Fed chairment for clues as to where Fed policy was headed in the near future. 

Did Greenspan seem to favor higher interest rates, or was he keeping the money spigots open for the foreseeable future? If it looked like there was no threat of rising rates, then the markets responded bullishly. Monetary policy in that era will still easy-money oriented, historically speaking. But, the target rate did rise above six percent at times, so when the Fed chairmen talked about “tightening” there might at least be some mild rate hikes on the horizon. 

Market fear of Fed tightening appears to have lasted even until 2013 with the so-called “taper tantrum.” In May of that year, the Fed announced it would begin cutting back on its purchases of bonds and mortgage-backed securities in an effort to move toward more normal monetary policy. 

It was by no means a radical change, and the Fed certainly wasn’t about to significantly cut back its huge portfolio that it had amassed in the wake of the financial crisis to keep asset prices high.  

Nevertheless, the market did indeed throw a tantrum in 2013 in the form of a large sell-off in bonds causing yields to skyrocket over a period of months. In the end, the taper did not signal any sort of meaningful “normalization” in monetary policy, nor did it bring about a return to more ordinary target interest rates. Wall Street went back to business as usual. 

By late 2015, we were hearing regularly — now from Bernanke’s replacement Janet Yellen — that the Fed would “soon” be raising target interest rates and cut back the Fed’s huge portfolio. By early 2017, though, all the Fed had managed to do was raise the target rate to slightly above one percent. The balance sheet remained untouched.