The Federal Open Market Committee (FOMC) is the monetary policymaking body of the Federal Reserve System. The FOMC is composed of 12 members–the seven members of the Board of Governors and five of the 12 Reserve Bank presidents.  A new policy statement was released and there are a few minor changes from the December statement that I think are positive overall.

Here is what I feel are the important points:

  • Economic activity was described as expanding at a “solid” pace rather than a “moderate” pace.
  • The decline in inflation was noted and the committee said that although they anticipate it to decline further in the “near term”, they expect it to rise gradually towards 2% over the “medium term.”
  • The committee added the word “international” when describing its assessment of developments in the markets.
  • Most importantly, the statement dropped the “considerable time” language in referring to how long it will maintain the current Fed Funds rate (of course, the sentence about remaining “patient” in normalizing rates remained)

Yields are down approximately 10 basis points since the statement was released, which means that the bond market is interpreting this statement as dovish (supportive of maintaining near-zero rates), but I think this is a short-term view and I do not agree with it. I think the Fed is being as upbeat as they can be about the economy and I still see a rate hike later in 2015. But with the 10 year Treasury at 1.72%, this is not a good afternoon to be buying bonds…