As expected, today's FOMC Announcement was every bit the snoozer it should have been.  We knew qualitative guidance was likely to replace the unemployment threshold and that tapering would remain in place. 

Far less expected were the changes in the FOMC member forecasts.  Not only did the median forecast see the Fed Funds Rate being hiked sooner, but the 'end of 2015' target moved up from 0.75 to 1.0.

Keep in mind, when it comes to median forecasts (as opposed to averages) and when there's nothing in between .75 and 1.0 when it comes to the Fed's options, this move isn't as big as it sounds.  At least it doesn't necessarily have to be, depending on how it happened.  Here's how it happened:

The last round of forecasts had 10 FOMC members who saw end-of-2015 rates at .75 or below and 7 members who saw it above.  Today's forecasts dropped the cohort under .75 to a mere 6 members!  The remainder are now forecasting 1.00 or above. 

Based on the distribution of Fed forecasts, we're seeing a migration of the dovish/centrist members to slightly higher end-of-2015 forecasts and the super high outliers continue to be the quacks that no one cared about anyway.  Such a move among doves though... That's news to markets.  Check out WSJ's handy chart for more of a visual.

As the forecasts were out at the same moment as the FOMC Announcement, there was some confusion as to where the market movement originated.  It's not out of the question to consider the Announcement contributed to the selling pressure simply because it introduced uncertainty to the Fed's communication policy.  In other words, the 6.5% threshold was bad, but at least it was clear (until it wasn't any more, but it seemed to at first!). 

While the uncertainty may have contributed somewhat, it wasn't much compared to the adjustment in Fed Funds Rate (FFR) expectations.  Keep in mind that the FFR is an absolutely huge deal for markets, and that it just hasn't come into play much recently because it's been both "zero" and "not expected to rise any time soon." 

Some of the volatility in mid 2013 and now again today has to do with defining what "any time soon" might mean.  The FFR has a direct bearing on the cheapness with which firms can borrow money while they lend at increasingly higher rates (hello mysterious stock price strength!).  It's perhaps the single most important market metric, and adjusting the outlook on it's movement by even a small amount can have a drastic effect.

Add to that the fact that the next time the FFR moves, it will constitute a shift from "flat" to "rising."  So not only are markets needing to account for the outright change in the FFR, but also to get ahead of the long-term shift in the trend.  That's why it can move markets today by what seems like so much.

These matters were made worse when Yellen was asked what a "considerable amount of time" meant in the announcement with respect to the time between asset purchases ending and the FFR being raised.  Her answer: about 6 months.  Assuming Asset purchases end in October or December, that puts the first FFR hike in the first half of 2015--much sooner than market participants had been expecting.

The afternoon was akin to being fairly seriously injured, getting bandaged up, an having Yellen rip off the bandages along with any illusions about what 'considerable" might mean.  That's something we never really got from Bernake--at least not without a range and compensating factors.

Bonds and stocks especially took another tumble after the bandaid came off, but both leveled off into the afternoon.  MBS are drifting out 21 ticks lower in Fannie 4.0s at 103-24.  10yr yields are up 9.26bps at 2.772 and S&P's closed just over 13 points off their highs.