Markets are misreading Fed officials' comments, and the central bank could still raise rates, analyst warns

• The markets have been misinterpreting recent Fedspeak, a Barclays analyst said.
• Markets "have read far too much into recent Fedspeak that implied that these higher rates might have done some of the heavy lifting."

There's been a slew of commentary from Fed officials in the past few weeks suggesting that higher bond yields have tightened financial conditions, making more rate hikes unnecessary.

But Meghan Graper, global co-head of debt capital markets at Barclays, isn't convinced.

In an interview with Bloomberg TV on Tuesday, she said that markets have been in a "daily tug-of-war" with policymakers around the path of future rate hikes.

"I think there's been a lot of misinterpreted signals this month," she said. "I think the real question in my mind is what Powell and other members of the Fed opt to message this week ahead of blackouts in the context of what continues to be a rapidly evolving backdrop."

Fed Chair Jerome Powell is set to speak on Thursday at the Economic Club of New York, just before the central bank enters a quiet period ahead of its next-rate hike decision in November.

Graper said recent readings on the job market, consumer prices, producer prices, and consumer sentiment represent "a strong dose of reality for the market."

"All of that combined plays into how markets are responding, particularly on the rates side. But I think we've read far too much into recent Fedspeak that implied that these higher rates might have done some of the heavy lifting," she said.

The so-called Fedspeak infused markets with optimism that the central bank will be pausing rate hikes.

That's because high bond yields have jacked up borrowing costs across all corners of the economy, from mortgages to corporate debt.

"What I think the market has failed to take into account is the nuance between the 'why.' Why are financial conditions tighter?" Graper said. "If it's the strength of the economy which is fueling these longer-term interest rates, they may actually need to do more."