“I’ll be over 5% and I see staying there for some time,” Esther George told CNBC on Thursday.

She was referring, of course, to the terminal rate. “Holding that until we get evidence that inflation is actually coming down is really the message we’re trying to put out there,” she added.

That message (which born-again hawk Neel Kashkari likewise sought to drive home in a blog post) both is and isn’t resonating with traders.

On one hand, the fact that risk assets tend to frown at evidence of ongoing labor market resilience suggests there’s certainly some buy-in when it comes to the notion that up to and until the jobs market is more balanced, the Fed will err on the side of incrementally tighter policy.

On the other hand, pricing for rate cuts in the back half of the year is stubborn, to put it politely. The Fed hasn’t come anywhere near dislodging it.

There’s been a very minor correction (a handful of basis points of implied cuts removed) over the past two weeks, but nothing even close to the kind of “Give it up, they’re not going to cut” moment the Fed ostensibly wants to see.

I said “ostensibly.” It’s not obvious the Fed is overly concerned about market pricing that remains demonstrably disconnected from policymaker rhetoric. If traders want to keep two regular-sized cuts for H2 as placeholder nods to elevated recession risk, that’s probably fine with the Committee.

In a Thursday note, Nomura’s Charlie McElligott captured the situation well. “I think we have to increasingly take Fed rhetoric from here on out with a large grain of salt, simply because they are trying to buy time for inflation to keep doing what it’s doing —  softening ahead of schedule,” he said.

Charlie quoted his colleague Jack Hammond, who weighed in on the Fed’s eyebrow-raising nod to the counterproductive effect of market rallies on financial conditions (from the December meeting minutes released on Wednesday). “Sometimes it’s not what you say, but how you say it. They don’t like the financial conditions move and felt the need to remind you they don’t want to cut in 2023,” Hammond said, adding that,

They reference market pricing inconsistencies versus their policies and are begging you to stop buying z3. But the tone is not harsh. It reminds me more of a mother begging their kids to take a shower after they play in dirt all day. The kids (the market) hear it, but think, ‘I’m happy being dirty and mom will love me even if I don’t listen.’ I don’t think these minutes have the sense of urgency to change anyone’s view of their duration position.

That’s an incisive take, and it underscores the idea that although the Fed would rather not have to fight market rallies in order to preserve the tightening impulse they “earned” in 2022, officials aren’t yet inclined to push back on STIRs in a way that suggests extreme consternation.

“FOMC members simply cannot discuss the possibility of Fed rate cuts coming later in the year when, for now, the Fed is still in the process of hiking rates. This should not be ‘news’ to anybody,” McElligott went on to write. “The tension in the market will continue to come down to the duration that the Fed holds at terminal,” he added. The data will determine “whether this current dovish, best-laid plans of ~50bps of cuts by year-end 2023 realizes or not.”