What Was Said

A quick view of the FOMC Statement shows an important shift in FOMC thinking and its view of the economy.

First off, there is the opening line:

"Economic growth has slowed over the course of the year, partly reflecting a cooling of the housing market. Going forward, the economy seems likely to expand at moderate pace."

Last month's FOMC statement, the opening line was:

"The moderation in economic growth appears to be continuing, partly reflecting a cooling of the housing market."

Difference? Slowdown moves to the past tense and they add the expectation for growth. The Fed is saying that the housing slowdown has not broadened out to hurt the wider economy and has likely hit bottom.

Is there anything for them to worry about?

"Readings on core inflation have been elevated, and the high level of resource utilization has the potential to sustain inflation pressures"

The previous statement explicitly noted that energy and commodity prices were part of the parade of factors to sustain inflation, now no longer.

In sum?

Fed isn't worried about housing creating a broader slowdown. The Fed knows that the commodity push to headline inflation has subsided. The Fed has declared its concern about the old bugaboo, monetary inflation. They will watch and wait for now. No moves till Jan at the earliest. But they are poised to tighten in the face of stronger growth, more so than they are poised to ease. As Kohn told the Money Marketeers in the Q&A -- don't short the Fed's resolve to fight inflation.

More later today on where the market has priced this all out.