There was one important fact that was hidden in all the commentary about the recent Fed decision: the average fed funds expectation for 2016. Many investors were expecting the median expectation (which is the headline statistic analyzed by all Fed watchers) by FOMC members for the Fed funds rate at the end of 2016 to be lowered at the last meeting. However, it remained at 1.375%, which was disappointing in many respects and considered a somewhat hawkish sign. Of course, the language was fairly dovish and the members' expectation for inflation was revised down, but eventually the equity market seems to have been disappointed with the Fed's decision. Importantly, however, the average fed funds expectation for 2016 fell to 1.287% from 1.48%, or nearly a full 20 bps, from the September meeting, as quite a few hawks sharply reduced their fed fund forecasts. For some reason, commentators and the media skipped this important sign, but it is important that investors know the Fed was even more dovish than apparent in the headlines.

The Fed had clearly committed to act in December, so it felt it must follow through even though oil prices fell about 15% in the two weeks before the meeting, thus increasing deflation expectations greatly. Indeed, it was a bit surprising that the most dovish FOMC voter, Mr. Evans, did not dissent from the decision for this reason. Before the recent swoon in oil prices, it could accurately be said that the Fed's basic position is that it remains data dependent but has a "normalization bias." This is different than a "tightening bias," as they are not actually trying to slow down the economy or inflation, but rather normalizing rates so that they exit the somewhat embarrassing zero interest rate policy and because the Fed wants ammunition for the next economic downturn. We still believe that it has this normalization bias, but that it will be even more data dependent than we thought at our December Global Investment Committee meeting.

In sum, even though in her press conference, Ms. Yellen nearly ruled out hiking at alternating meetings, this still is the most likely scenario in our view. However, there is an increasing chance that if oil prices remain at these extremely low levels or decline even further, the odds for further hikes will be much more uncertain.