Because the Fed has a broad responsibility to maintain orderly and well-functioning financial markets, the argument goes, the central bank will avoid policies that create unnecessary financial stress, all else being equal. I suspect that this second variant of the financial-stability argument has some merit, but the case is not as straightforward as it may seem at first.
A problem with the argument is that policy gradualism does not necessarily insulate bondholders from capital gains and losses. Indeed, we have just seen that, under a gradualist approach, a small change in the policy rate may have a relatively large effect on longer-term rates, because of its implications for private-sector expectations about the future path of short-term rates.