The Federal Open Market Committee issued its decision to leave interest rates at 2%. This was as expected. However, the statement was much more dovish than expected. Language in the previous statement indicating that downside risks to growth "appear to have diminished somewhat" was deleted, and the focus clearly remained on the economic situation, although inflation risks continue to be acknowledged.

The U.S. equity markets rallied prior to the statement being released and continued after the decision was issued. Oil prices also continued their retreat.

The dovish nature of the decision was indicated by the fact that there was only one member voting for an increase. As many as three members were expected to vote for an increase. Despite the recent hawkish statements, all members voted to maintain the 2% level.

This confirms what I have said in recent posts that hawkish talk does not necessarily translate into hawkish action. As I have said in my book, Follow the Fed to Investment Success, "watch what the Fed does not what it says."

The economy is still far too weak for the Fed to begin raising rates.

Doug Roberts is the Founder and Chief Investment Strategist for ChannelCapitalResearch.com, and is the author of Follow the Fed® to Investment Success: The Effortless Strategy for Beating Wall Street. He previously held executive positions at Morgan Stanley Group and Sanford C. Bernstein & Co.

The Federal Open Market Committee (FOMC) will announce its decision on interest rates on Wednesday at the end of a two-day meeting -- one that will be watched more closely than ever before. The financial markets have experienced incredible volatility over the last several months, almost disintegrating on several occasions. However, the Fed's string of interest rate cuts has managed to stabilize the situation, at least temporarily. Whether the market remains stable depends in good part on the Fed's next actions.

There is a general consensus, which I agree with, that the FOMC will cut both the short-term rates it controls -- the Fed Funds Rate and the Discount Rate -- by 0.25% and then indicate that it will pause in taking any further action at its next meeting. Given this consensus, the supporting statements the Fed issues will be what are truly important to investors. The devil, in this case, really is in the details.

In the past, the Bernanke Fed had a serious perception problem. Many investors thought that it was behind the curve, unable to stop a meltdown of the financial markets and a severe recession. The recent rate cuts and injection of liquidity through various lending facilities, along with facilitating the Bear Stearns sale, have eased the situation. Bernanke must be careful not to damage this newly found credibility in the upcoming FOMC statement.

The CPI numbers released this morning seemed to be exactly what Wall Street was seeking. Although the actual CPI number was up 0.7%, the largest increase since Hurricane Katrina, the core number, which excludes food and energy, came in at 0.1%, less than the forecasted 0.2%. Combined with the recent unemployment numbers which were better than expected, and increasing economic strength shown by the Fed Beige Book yesterday, this is about as good as it gets as this morning's surge in the equity markets demonstrates!

It indicates that the economy is still strong with slow growth despite the housing slowdown and higher gas prices. It also shows that inflation is contained primarily with rising gas prices and is not spreading to other parts of the economy.

This is the scenario that Fed Chairman Ben Bernanke described when the Fed stopped raising interest rates several months ago and gives him all the ammunition he needs to continue on his current path, which is to do "nothing" for the foreseeable future. The Chairman appears to be one smooth operator, more so than the forecasters on Wall Street.