Fed Bullish, Not Dovish

As expected, the Fed decided to remove the word "substantial" to describe the housing market's cooling, even in the face of the weakest quarterly showing of residential investment since 1991.

The GDP report showed housing activity declined in the fourth quarter by 19.2%, from 18.8% in the third quarter. Housing's drag grew as well. After lopping off 1% to the third quarter's 2% growth rate, housing dragged fourth-quarter GDP down 1.2%. Boosting GDP was a 4.4% rise in consumer spending, a 3.7% increase in government spending, a 12% jump in defense spending and a 10% leap in exports.

The Fed acknowledged stronger overall economic growth. Previously, economic growth was depicted as "mixed."

The statement read: "Recent indicators have suggested somewhat firmer economic growth, and some tentative signs of stabilization have appeared in the housing market."

But the markets honed in on the Fed's assessment of inflation, taking it to mean the central bank is on permanent hold, says Brian Wesbury, chief economist at First Trust Advisors. The statement read: "Readings on core inflation have improved modestly in recent months, and inflation pressures seem likely to moderate over time."

The bond market staged a relief rally on the statement as well, but largely because the Fed assuaged bond traders' rate-hike fears. The 10-year note rose 14/32 to yield 4.81% -- falling back down through 4.85%, which was a key technical level the 10-year had broken above last week. The 30-year bond rallied 30/32 to yield 4.91%.