With the Fed meeting out of the way, market focus shifts to the U.S. economy and Thursday's GDP report should show it barely grew in the first quarter.
First-quarter growth was tracking at 0.7 percent, according to the latest CNBC/Moody's Analytics Rapid Update of economists' forecasts. The report is expected at 8:30 a.m. EDT, the same time as the release of weekly jobless claims.
"I think the markets will give the first quarter a pass, as long as it's not too devastatingly bad," said Jim Caron, portfolio manager with Morgan Stanley Investment Management. "If it's negative, they would not be comfortable." The first quarter has been the weakest quarter of the year for the past several years, and a negative number could be within the margin of error.
Markets Thursday will also be digesting the result of the Bank of Japan's policy meeting overnight. Expectations for the BOJ ranged from no action to programs introducing more negative yields and further equity ETF purchases.
There are also dozens of earnings — including Ford, MasterCard, UPS and Deutsche Bank ahead of Wall Street's opening bell. Amazon.com, LinkedIn, Baidu and Gilead weigh in after the market close.
The Fed Wednesday kept rates on hold and stuck to its message that it would be slow to raise rates. So once more, emphasis is on the economic data to frame expectations of when the Fed might raise interest rates again. In its post-meeting statement, the Fed did drop its concerns about international risks and said instead it was monitoring global developments. As expected, the Federal Open Market Committee also left the door open to rate hikes but didn't target a time frame.
"In terms of the economy, they acknowledge that employment growth has been strong but the economy has slowed. We're seeing a bull flattening of the Treasury curve," said Robert Tipp, chief investment strategist at Prudential Fixed Income. He explained the flattening, where the yields at the longer end and shorter end of the Treasury curve move closer together, reflects the view that the Fed will be slow to hike rates and that there's little inflation risk.
Treasury yields moved lower Wednesday while stocks moved higher after the Fed. Stocks ended the day mixed, with the up 3 points at 2,095. The Nasdaq, pulled down by Apple, was down 24 at 4,863, but well off its lows.
Caron said the weakness in financial conditions in the first quarter — which also gave the Fed pause — was a factor behind the first quarter sluggishness. Risk assets sold off and credit spreads widened as markets feared disruption from China and low energy prices. Economists say the first quarter weakness was the result of too soft business spending and an inventory correction.
Caron said the worsening of financial conditions during the winter months also hampered growth. The latest economic reports have been mixed with some indicators, like durable goods, coming in below forecast.
"All the economic data we're getting today is from the first quarter. We're not going to get a fresh look at the second quarter until next week. The data we are going to get up until May is going to reflect the spillover from the weak first quarter," said Caron. By June, he expects to see better data reflecting a stronger pace of growth.
But he doesn't believe the Fed will be ready to hike interest rates in June even though credit spreads have tightened, stocks are nearing highs and oil prices appear to have bottomed. The futures markets also price in a low chance of a June hike and do not price in a full rate hike until early 2017.
"To come in in April and reopen the door that the Fed might move in June, it's like reopening Pandora's box … why not let the easing of financial conditions settle in. … Let the paint dry and then worry about it later on," said Caron. "This is very much the optimal control of [Fed Chair] Janet Yellen. Let the economy run hot. Let inflation pressures percolate. They can always hike faster later."
Diane Swonk, CEO of DS Economics, said she is now leaning toward September for a rate hike, rather than June. "If the Fed intends to raise rates in June, they need to do some heavy lifting in terms of changing market expectations. … They don't want to shock the markets, and the June meeting is one week before Brexit," she said. Brexit is the U.K. vote June 23 on whether to leave the European Union, seen as a potential negative for both the U.K. and Euro zone economies.
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Swonk said the backward-looking GDP data Thursday will probably not be that important to the market's view of the Fed, but Friday's data could be. "The next shoe to drop is Friday, and that's the PCE deflator. I think the PCE deflator is going to moderate a bit. It was up at 1.7 percent so if it comes down to 1.6 or 1.5 … I think it got a little ahead of itself," she said. The deflator is the preferred inflation measure of the Fed, which noted that inflation looks like it will continue to run below its target of 2 percent.
Earnings Thursday are also expected form Colgate-Palmolive, Honda Motors, ConocoPhillips, Domino's Pizza, CME Group, SiriusXM, Beazer Homes, Viacom, Brunswick, Dunkin' Brands, Oshkosh, Volkswagen and Bristol-Myers Squibb, all before the open. Afternoon reports are expected from Amgen, Western Digital, Skyworks Solutions, AppliedMicro, Groupon, Pandora Media, Virgin America, Outerwall and Expedia.