The Fed Decision: The Real News Was Yesterday, Not Today!

Politically, it will also be extremely difficult for the Fed to tighten monetary policy until the employment situation improves as long as inflation remains subdued. This is especially true with mid-term elections in 2010.

The FOMC's decision to phase out the extraordinary programs utilized last year is not necessarily significant in light of the Fed leaving rates unchanged. It can always extend these funds with the discount window through the banking system.

However, the news that the Fed may considering targeting the interest rate paid by the Fed on excess reserves held at the Federal Reserve instead of the Fed Funds rate may be more important. If the Fed does this, it may be going back to its prior policy of injecting excess liquidity through the banking system instead of open market operations.

This allows the Fed to target liquidity injections to an area over which it can exercise greater control and oversight than to the general economy as a whole. Prior to the 1990's, the FOMC used the discount rate, the interest rate that it loaned money directly to member banks, as its primary benchmark. This devil of course will be in the details when the Fed does release a statement.

There does not appear to be monetary tightening on the near-term horizon. The types of programs used to inject money into the economy are more a question of form rather than substance.

The Fed will most likely utilize speeches by Fed officials to telegraph any significant changes in monetary policy to minimize the chances of confusion and disruption in the market. This has been and will continue be the pattern for the near future.

The focus now shifts back to earnings and other economic news such as GDP and of course the President's State of the Union address.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, an independent research firm focusing on investment strategies using the Federal Reserve's impact on the stock prices.