After the Fed: Hesitation

The Federal Open Market Committee kept the fed funds rate unchanged at 5.25%, and delivered some kinder, gentler language on inflation Thursday. But investors only momentarily sighed with relief, and quickly returned to their previous worry-filled programming.

The stock market initially rallied on the FOMC news, but fell back to neutral amid the now familiar concerns about souring credit conditions stemming the tide of liquidity and leveraged buyout activity.

The Dow Jones Industrial Average and the S&P 500 ended the day down a fraction at 13,422.28 and 1505.71, respectively. The Nasdaq Composite ended in the green, up 0.1% at 2508.37.

The FOMC edged another notch toward neutral by noting stronger economic growth and by removing the word "elevated" to describe inflation in its policy statement at the conclusion of Thursday's meeting.

Investors had been concerned the Fed may keep in the phrase as a nod to increasing inflation from energy and food prices. That would be a shift from the core inflation readings, excluding food and energy, that the Fed had trained the markets' eyes on.

The FOMC returned to similar language used in its January statement, saying: "Readings on core inflation have improved modestly in recent months."

But the Fed tempered the dovish tone, and nodded to higher overall inflation by adding that the inflation dragon is far from slain. "A sustained moderation in inflation pressures has yet to be convincingly demonstrated," the Fed said.