Updated from 5:11 p.m. EST

Wall Street maybe got a bit too much clarity from new Federal Reserve Chairman Ben Bernanke, who celebrated his first rate-setting meeting at the central bank Tuesday by delivering the Fed's 15th quarter-point rate hike in a row.

In the accompanying statement , market players discovered not so much new but rather more language. Of particular note, the Fed statement added commodities to a list of potential sources of inflation that already included energy, shrinking labor and production resources.

"Possible increases in resource utilization, in combination with the elevated prices of energy and other commodities, have the potential to add to inflation pressures," the Fed statement read. (Italics added)

Bonds and stocks sold off in reaction while the dollar jumped.

The Dow Jones Industrial Average dropped 95 points, or 0.9%, to 11154. General Motors ( GM) dropped 0.8% even after announcing it will cut 500 white-collar workers. (After a brief halt, however, GM shares were recently down 3% in after-hours trading; in its annual report, the company said earnings for its GMAC financing unit will have to be restated for periods in 2005, 2004 and 2003.)

The S&P 500 index lost 0.6% to 1293, and the Nasdaq Composite dropped 0.5% to 2304.

The price of the benchmark 10-year Treasury bond fell sharply while its yield, which moves inversely, rose to 4.78%.

The dollar, which remains supported by the Fed's rate hikes, jumped 1% against the yen. It was little changed vs. the euro, which was aided by news of strong business confidence in Germany.

For Bulls, More Is Less

Market participants concluded that more language means more rate hikes are on the way. In case there were any doubts, the Fed repeated language found in previous statements: "some further policy firming may be needed."

Some on Wall Street had hoped that the central bank would say it was done with raising rates after taking the fed funds rate to 4.75% on Tuesday. Many more were looking for signs, at least, of when the Fed's tightening cycle might end.

But both the overly and the moderately optimistic were disappointed. After the Fed announcement, the market priced in 88% odds that the Fed would hike to 5% in May. The market also priced in 20% odds of a move to 5.25% by June, compared with 0% on Monday, according to Miller Tabak.

Concerns that a slowdown in the housing market -- as seen in a plunge in February new-home sales last week -- might hurt the economy in the second half of the year had fueled hope for the "one-and-done" crowd.

But it didn't help their case that homebuilder Lennar ( LEN) posted a better-than-expected 35% increase in first quarter earnings on Tuesday. Lennar shares rose 1.2%, though the Philadelphia Housing Sector index dropped 0.7% following the Fed decision and statement.

There was no mention of a slowing housing market in the Fed's statement. The direct references to the pace of economic growth were clear but fairly balanced. In the first quarter, the economy has "rebounded strongly" from "temporary" weakness in the fourth quarter of last year, the FOMC declared. But growth is expected to "moderate" in future quarters, the statement said.

The Fed did stop referring to economic growth as "solid," instead predicting that growth will "moderate to a more sustainable pace."

But economists still viewed the Fed's focus as remaining clearly on inflation.

"My view is that although the housing market has slowed in response to higher interest rates ... Fed officials are still concerned about inflation pressures emanating from a fully employed economy and from potential commodity-price increases," writes Sherry Cooper, chief economist at BMO Nesbitt Burns.

Meanwhile, the one big difference in style with statements under former Fed Chairman Alan Greenspan was indeed more transparency. Bernanke followed through on his promise to explain what the Fed was thinking.

"One thing is clearer: They are worried about all these inflationary factors," says Marc Pado, market strategist at Cantor Fitzgerald. "They are worried about wages and unemployment, and not just energy but also commodity prices."

This, Pado notes, is a big difference from the Greenspan days. In previous tightening cycles -- before the current one started in June 2004 -- the former Fed chairman would signal a looming rate hike, or rate cut, by emphasizing one particularly worrying factor. To signal no moves, he would focus on something nobody was worried about, Pado says.

By including in the statement all of the potential sources of inflation the Fed is monitoring, Bernanke signaled that more rate hikes are on the way. But by not focusing on any particular issue, he has left as much ambiguity about future policy as Greenspan used to.

The stock market had first worried, before being reassured, about Bernanke's ability and willingness to provide continuity with Greenspan. But continuity of uncertainty is not was the market was hoping for.
In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback; click here to send him an email.

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