As expected, the Fed expressed concern about the economic outlook due to the recent market turbulence. But it didn't rule out a rate hike in March. The Fed is expected to postpone  the next hike from March to June.

As expected, the Fed expressed concern about the economic outlook due to the recent market turbulence but without giving any clear hints about the likely outcome of the March meeting. Thus, it didn't rule out a rate hike in March.

According to the FOMC statement, the Fed is "closely monitoring" developments in global economies and financial markets and their implications for the US economic outlook and the balance of risks to the outlook. The removal of the phrase from the December statement, which noted that risks were "balanced", illustrates the increased uncertainty within the FOMC.

Still, the central bank emphasized the resilience of the job market in the wake of a slowing economy. It also maintained its expectation that the economy will continue to expand at a moderate pace and that inflation will rise to 2% over the medium term as the transitory effects of lower energy prices and import prices dissipate and the labour market continues to strengthen.

While the FOMC statement noted that market-based measures of inflation expectations have recently declined further, survey-based measures were said to be little changed, also in line with expectations.

Monday's speech by Vice Chair Fischer is now the next focus point, when he will be able to say how worried the Fed is about recent developments and hence help shaping rate expectations. Also Fed Chair Yellen's semi-annual testimony to Congress on 10 February would be a good opportunity to send a clearer signal on what might happen at the 15-16 March FOMC meeting.

Although the Fed didn't sound overly dovish in today's FOMC statement, it is believed Fed will be postponing the next rate hike from March to June. The key reasons are the recent sharp tightening of US financial conditions and the renewed drop in oil prices. Thus, economists are increasingly worried that the expected recovery in market risk sentiment will be delayed compared to early assumptions. Add to this that the most recent plunge in oil prices, by delaying the recovery in inflation, provides the Fed with the luxury of a bit more time to build confidence that the tight labour market will feed more through into higher wages.

"We see only three Fed rate hikes this year, down from four in our previous baseline which was in line with the Fed's recent dot plot from December. Thus, the Fed is expected to lift rates by 25 bp at the FOMC meetings in June, September and December. In 2017 we also take down our forecast from four to three rate hikes, less than half the usual tightening pace", says Nordea Bank.