Again, its like the election and markets’ response never happened.

The FOMC statement was about as boring as can be thus giving us nothing much new. But it does reaffirm a still very dovish committee that seems to want to wait to see what fiscal policy changes DJT will bring us. They seem to have not taken any messages from the robust market responses to the election that have taken stocks, interest rates, inflation expectations and confidence figures much higher. This is from a committee that embarked on 3 rounds of QE and 7 years of ZIRP because they wanted to lift asset prices.

The commentary on the economy was about identical to the one given in December. They remain very nonchalant with the rise in inflation expectations. Since their November meeting, 5 yr inflation breakeven expectations have gone from 1.55% to 2.06% today (sat at 1.85% at the December meeting). In the December statement they acknowledged the 30 bps bounce off the early November bottom by saying “market based measures of inflation compensation have moved up considerably but still are low.” Since the December meeting they rose another 20 bps but today left out the “up considerably” line. Now that “market based measures” reached their 2% inflation target, they repeated that they still “remain low.” I wonder what they would consider ‘normal’?

They repeated their desire to reinvest maturing securities in order to keep the balance sheet steady and there were no dissents but that’s because there really aren’t any hawks left this year.

Bottom line, it’s clear AGAIN that the FOMC is only reactive in its nature and barely so. They’ve not changed their official response at all since the election, acting almost like it never happened. They believe that .625% is the right rate for an economy that has essentially met their stated mandates, 8 years into a recovery. I still think they raise in March but giving out hints to that may have to wait until mid February when Janet Yellen gives her semi annual testimony to Congress.

The market response should be as expected to this dovish statement with the 2 yr note yield falling to 1.21-1.22% from 1.24-25% just prior. The 10 yr yield is down 1 bp from right before. Rate hike odds for March captured in the April contract are at 32% vs 36% yesterday but 42% just before the statement.