Did the Markets Overlook a Sign of Fed Bullishness in the March 16 FOMC Statement?

Financial markets reacted to the outcome of the FOMC meeting on Wednesday, March 16, as if what the Fed had revealed was highly dovish, that is, diminishing expected future interest rates.  The markets focused on the shift in the “dots plot” which formally rescinds the Fed’s previous forecast that it would raise interest rates four times in 2016.  (Now it says twice.)   Furthermore, Chair Yellen in her press conference said, “Most Committee participants now expect that achieving economic outcomes similar to those anticipated in December will likely require a somewhat lower path for policy interest rates than foreseen at that time.”

But this is old news. It reflects developments at the start of the year, such as the US report that GDP growth had been weak in the 4^th quarter and the global financial market volatility in January and early February (especially related to China).  Everyone knew all this a month ago.

The new news pertains to what has happened since mid-February.  A lot of trends that had appeared to be negative have reversed in the last month.  Statistics on US domestic final sales in January suggest that GDP will likely be stronger in the first quarter. Meanwhile, strong employment reports continue the record-long streak of private jobs gains, which have been running in excess of 200,000 per month.  And globally, downward pressure on the renminbi, the stock market, and commodity prices — which had so worried investors – all abated in February-March.

So did the Fed recognize these signs of economic strength in its statement Wednesday?  Yes, it did.   Gone was the January sentence “…economic growth slowed late last year.”   In its place was a note that “economic activity has been expanding at a moderate pace…”   (Also “Inflation picked up in recent months.”)  Unless I am mistaken that language wasn’t there before, only the longstanding positive language about employment.  It seems to me that the markets this week may have missed an acknowledgement from the Fed that things have turned around since the first six weeks of the year.