Fed Juggles; Stocks Run in Place

The Fed did not change its take on inflation at all. The statement reiterated that core inflation is elevated and could remain so. As several Fed speakers and Bernanke have hammered home in recent weeks, the Fed will move rates based on the fluctuations of core inflation. Richmond Fed president Jeffrey Lacker remained a dissenting voter, arguing the Fed should be raising rates now as core personal consumption expenditures remain at 2.4% year over year and the core consumer price index is running at 2.7% year over year. The Fed's stated comfort zone is 1% to 2%, but it would likely settle for 2% to 2.5% as long as it keeps falling.

But the growth-obsessed bond market gained moderately on the Fed statement -- a sign that bond traders may be getting used to Bernanke's data-dependent message. Even three months ago, the word "substantial" would have sparked a much larger rally.

The 30-year bond rallied 8/32 to yield 4.61%, up only two basis points, while the 10-year note added 7/32 to yield 4.49%, and the two-year note added 3/32 to yield 4.61%.

Alternately, the bond market may have tempered a rally on news the trade deficit narrowed to its lowest level since August 2005, or signs in the corporate debt market that the Fed is nowhere near tight.