Traders debate whether Fed refusal to hike is creating a 'crisis of confidence'

The FOMC delivered almost exactly the statement the stock market was anticipating:

1. No rate hike.
2. A modestly more hawkish statement: "The case for an increase in the federal funds rate has strengthened."
3. A balance of risks: "Near-term risks to the economic outlook appear roughly balanced."
4. A modest upgrade to the economic outlook: "The labor market has continued to strengthen and growth of economic activity has picked up from the modest paced seen in the first half of this year."

The S&P 500 rose initially, dropped, then rose again. Banks, which move up on perceptions of a steeper yield curve, declined. Investments that compete for yield, like REITs and utilities, rose.

The Fed's strange refusal to pull the trigger on a rate hike (deciding "for the time being, to wait for further evidence of continued progress toward its objectives") is the main topic on trading desks and several variations on the "why haven't you acted yet" question were posed at the presser.

There is now a substantial minority who believe that the Fed's refusal to move is creating a crisis of confidence, a crisis that could engulf the usual "stocks up, bond yields down" trend normally seen when the Fed does not hike.

Fed Chair Janet Yellen apparently does not share this concern. During the press conference, she said there was "little risk in falling behind the curve in the near future."

When my colleague Steve Liesman asked her if the Fed had created "new goalposts" to delay raising rates, Yellen avoided answering the question, instead saying that there was more "running room" for the economy.

She said one increase in the federal funds rates this year would be "appropriate" and reiterated that "every meeting is live."

Yellen certainly anticipated the "crisis of confidence" questions. During what is supposedly an extemporaneous press conference, Yellen read canned responses to many of the reporter's questions.

The "we didn't raise, but every meeting is live" mantra seems to have accomplished the three goals she likely is seeking:

1. Keep the bond market stable (2-year yield little changed).
2. Keep December on the table.
3. Maintain as much flexibility as possible for the board.