We suspect many observers are exaggerating the hawkishness of the FOMC statement

They emphasize Kansas City Fed President Hoenig's dissent. But to even call it a dissent is to attribute too much gravitas to it. In the past, as far as we can tell, dissents were an expression of disagreement over the course of action that the majority endorsed. There was no such thing here. Hoenig disagreed with the characterization of the guidance--he favored dropping the "extended period" for which rates may remain low. In addition, if it weren't that Chairman Bernanke confirmation had been questioned, given his public comments, a dissent by Hoenig seemed likely. In fact, this is likely to only be the first of several dissents we should expect to see from Hoenig. It should reinforce perceptions that Hoenig's views are not the majorities. He reflects a small faction of views. He is an outlier. In terms of the Fed's economic assessment, those with a more hawkish spin are playing up the characterization that growth is moderate instead of weak. But look the consensus is expecting around 4.5% Q4 GDP to be released Friday and a healthy Q1 10 GDP (3%-4%). The Fed has to recognize this and by acknowledging it and still sticking to its essential message it enhances its credibility.


Elsewhere as we anticipated, the recent weakness in a wide swath of housing data compelled the Fed to drop its constructive comments about residential real estate. Also, an issue that has had an important place on our radar screen, for the first time the Fed formally recognized that bank lending was contracting. Although many observers may disagree with this more dovish interpretation of the FOMC statement, we think investors will concur. Note that the June Fed funds futures are trading 1 bp lower (implying higher yield) than they settled on Tuesday. And the 20 bp implied effective Fed funds rate compares with 33 bp at the end of last year.