The Fed Delivers A Holiday Gift

The Fed gave the Street what they wanted:

1) a modest upgrade of the employment condition ("deterioration in the labor condition is abating")

2) no change in its tone regarding housing ("some signs of improvement"), household spending ("expanding at a moderate rate"), or inflation ("will remain subdued for some time"), or on interest rates ("exceptionally low levels...for an extended period").

So why did the Dow drop 50 points on this non-event? The tone of the Fed statement is supportive for the dollar, and indeed we saw the dollar move up, and stocks down a bit.

Why?

Because we got more detail on the expiration of the special liquidity programs that the Fed implemented for commercial paper, money market funds, and others...while this is not surprising, it does reinforce the ending of the extraordinary liquidity measure the Fed instituted in the last year, and that is supportive for the dollar.

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