For most of their history, financial markets have been on the same page with the Fed. When the nation's central bank raises interest rates to fight inflation, financial markets adjust asset values downwards to reflect the higher rates.

By contrast, when the central bank lowers interest rates to fight unemployment, financial markets push asset prices lower to reflect the new policy.

Thus, the old Wall Street aphorism: "Don't fight the Fed."

But there are exemptions to this rule. At times, financial markets and the Fed are on different pages, as has been the case in recent months.

The Federal Reserve keeps raising interest rates, telling investors they will continue to do so for most of 2023, and even if they pause, it may take quite some time before they begin easing again.

But investors do not go along with this narrative. Instead, they believe the central bank will cut interest rates sooner rather than later. Thus, they see any pullback in risky assets as a buying opportunity, fighting the Fed and spoiling its intentions in some cases.

For instance, as part of its reverse Quantitative Easing Operations, the Fed has been selling U.S Treasury bonds, which should have driven the prices of these bonds lower and higher yields. Instead, U.S. Treasury bonds are rising, and bond yields are dropping.

The 10-year Treasury bond is trading with a yield of 3.48%, 72 basis points below its October peak. It adds fuel to inflationary pressures rather than easing them.

Likewise, the Nasdaq index, home of some of the most-risky equities, is trading close to where it was last September. In addition, the S&P 500 is trading approximately 15% higher than last September, while the Dow Jones is near all-time highs.

Why are markets fighting the Fed? For a couple of reasons.

First, they have a different narrative on the outlook for inflation and economic growth. The Fed thinks that, despite the recent ease, inflation remains elevated and that it will take a few more hikes, followed by a prolonged period of pause, to bring inflation down to its target of 2%.

Second, the Fed is further concerned about inflation spinning out of control due to a strong labor market, which could fuel a wage-price spiral.

Markets think the strong labor market is a lagging economic indicator, distorted by the pandemic.

Moreover, markets think interest rate hikes will push the economy into a recession, drive inflation further down, and force the Fed to cut interest rates sooner than later. Thus, the rush into long-maturity bonds and the buying in the dip mentality.

Third, markets see a credibility issue with the Fed's policies. For example, when inflation appeared a couple of years ago, the Fed insisted it was transitory due to supply chain bottlenecks as economies exited the pandemic lockdowns.

Moreover, the Fed thought the labor market remained well below maximum employment. Thus, it kept interest rates low rather than hike them, as markets expected.

John Koch, Senior Investment Analyst at iSectors, an independent ETF investment strategist, doesn't think that markets are out of touch with reality, providing further insight into the Fed's credibility problem.

"They just do not believe what the Fed is saying when Jerome Powell lays out his plan for the path of interest rates," Koch told International Business Times.

"In recent history, the Fed has not stuck to its word. In 2021, for example, the party line was that inflation would be 'transitory.' But, as we have now experienced a year plus of increasing inflation, that sentiment turned out to be wrong even though they had reiterated it many times in 2020 and 2021."

Still, Koch believes that the Fed will still stick to its 2% inflation target and stay hawkish for much longer than the market expects.

"So who turns out to be correct over the next 12 months may be a game of chicken played out on the largest scale possible," he said.

Inflation