In its long-awaited decision, the Fed decided on Wednesday not to hike the Federal Funds rate from the 00.25% level it has been at since December 2008. Suspense was also building since the Fed has not increased rates since June 2006, and the leading lights of the central bank have been reiterating that they would like to hike by the end of 2015. That left only the meeting this week, and the last meeting of the year in December. The creation of only 142,000 jobs in September - - far below consensus - - and the plunge in the labor force participation rate had already reduced expectations of a rate increase this week.So what did the Fed do in its latest statement' While the China slowdown figured prominently in the Yellen press conference last month explaining her decision not to hike, the Fed statement this week suggested that its next move would be based principally on domestic considerations. It also explicitly stated that whether to move rates from the zero level would be on the agenda at its next meeting on December 15 and 16. The announcement led stocks to fluctuate sharply between positive and negative levels as investors attempted to decipher what the Fed's true intentions were. 2-year and 10-year US Treasuries, currently at 73bp and 2.15%, respectively, are 1012 basis points higher than their levels just prior to the Fed announcement.In my opinion, the Fed decision stemmed from its concern that the market had turned too complacent, with Federal Funds futures suggesting just a 5% probability of a hike on October 28, and a much-less-than 50% chance of an increase on December 16. By keeping alive the possibility that the rate could yet increase in a few weeks, the Fed was attempting to stem the speculative fever in the market that has resulted in the bull market for both equities and high-grade fixed income. But notice that despite the Fed's best efforts, the 2-year Treasury is yielding some 15 bp less than it did before the mid-September Yellen press conference, and that the VIX index has surged from its recent low at 1:55 pm Eastern on Wednesday. In other words, the impact of the Fed decision has been felt mostly in market volatility rather than in dramatically changed investor expectations.Why is this the case' The Fed has cried wolf too often since it started its "emergency monetary policy" almost seven years ago. Forecasts of a sharp pickup in GDP growth have typically proven far off the mark. And despite repeated Fed forecasts that its members were confident that inflation would head toward the 2% target, various inflation measures have languished far below this level. Real wages, especially for lower income groups, are at levels below where they were when the Great Recession began in December 2007. The Fed cannot hike right now, but wants to keep alive prospects for an imminent rise! Hope springs eternal.Even though the Fed has de-emphasized global factors in its latest statement, it just cannot wish them away. The Chinese economy continues to slow, a Currency War is on with major global central banks competing to weaken currencies repeatedly against trade partners, and these factors have caused the dollar to strengthen. Under these global circumstances, a Fed rate hike would further push the dollar toward parity with the euro, hurt US exports and economic growth - - not something the Fed would like to face less than a year ahead of presidential elections!What do I expect' No Fed hike in December, more Fed attempts to weaken the dollar, and the 10-year Treasury yield to again go through the 2% level toward 1.50%.SEE ALSO:... almost everything they said was bearishJoin the conversation about this storyNOW WATCH: Russia's military is more advanced than people thought
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