The Federal Reserve released its policy statement at 2:00 PM today with no follow-up press conference. To no one's surprise, the Fed left interest rates unchanged. The Fed's statement gave a mixed view of the economy (labor markets improved while economic growth slowed) but expressed the optimistic view that "...with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace and labor market indicators will continue to strengthen." The Fed reiterated its concern about inflation running below a desired 2% level but also said that 2% could be achieved over the "medium term" with a strengthening labor market. Most importantly, the Fed said that it expects "...economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data." In other words, they are not in a hurry to raise interest rates, and, as the Fed has stated many times before, all is dependent on the economic data.
This statement from the Fed is rather dovish, but apparently it was not dovish enough for Wall Street. (Perhaps they expected the Fed to take back the recent rate hike?) The DOW dropped over 200 points immediately following the FOMC statement, and the DOW closed at 15,944. We will have to wait and see if this bearish reaction continues over the next few days or even into next week. If it does, we could see equity markets make new yearly lows into our early February reversal zone instead of the rally and high we've been anticipating. On the other hand, the DOW seems to be finding support this week just above the 15,800 level. If the reaction to the Fed is just short-term, we could still see more rallying into the next week or two. Still on the sidelines of the broad stock market.