Markets waffled about it for a while, but it looks as though they've decided they like, on the whole, what the U.S. Federal Reserve Board had to say in its latest policy statement.
After dropping sharply immediately after the Fed's 2:15 p.m. ET statement, stocks rebounded into positive territory. The Dow Jones industrial average was up 14 points at 3 p.m. ET - more than 90 points above its lows immediately after the Fed announcement - whille Toronto's S&P/TSX composite index was down 27 points, an 85-point rebound from its post-Fed low.
To no one's surprise, the Fed left its target range for its benchmark Federal funds rate unchanged at 0 to 0.25 per cent. And it gave no hint of any movement in one of its other key rates, the discount rate - something some Fed watchers had been hoping for.
But a closer reading of the Fed statement revealed a few things that pointed in the right direction for investors.
Crucially, in just a single word the Fed changed from its previous policy statement in December, it sent a clear signal that its perception of the U.S. economy has improved.
The Fed now says that "the pace of the economic recovery is likely to be moderate for a time." The word "moderate" has replaced the word "weak" from that same sentence as it appeared in the December Fed statement. Anyone used to the Fed's sparse and careful use of language will recognize that this is a meaningful upgrade.
What's more, the Fed's decision to hold rates steady wasn't unanimous this time around. One member of the policy-setting Federal Open Market Committee - Thomas Hoenig, president of the Federal Reserve Bank of Kansas City - voted against the decision on the grounds that the economic prospects had improved "sufficiently that the expectation of exceptionally low levels of the federal funds rate for an extended period was no longer warranted."
So, at least one of the FOMC's 10 voting members thinks things have gotten so good that a rate increase is now within sight. Again, a pretty significant, if small, change of view.
Finally, the Fed spent some time outlining how its special liquidity measures continue to wind down on schedule. It left the back door open to extend several of them if conditions deteriorate again, but the message is that the emegency loosening of monetary conditions is gradually heading toward normal - albeit at a snail's pace.
There were a couple of distinct negatives in the statement, however. First, the Fed added the observation that "bank lending continues to contract." And second, it dropped its reference to the U.S. housing sector "showing some signs of improvement" - an acknowledgement of the string of disappointing indicators in recent weeks that suggest the housing market may be backsliding.
