Today turned out to be a fun little diversion for US traders.  It's as if they were turned loose to play in the sandbox without the oversight of their strict European parents.  That's not to say that US markets are subservient to European markets or that the Fed didn't matter--simply that there was a fairly limited reaction to the Fed in terms of closing levels.  Additionally, the higher volume days of the recent past have been led by big European moves.  Today was just sort of a volatile course correction for the yield curve. 

That means shorter term yields moved lower and longer term yields stayed the same or moved higher.  Such a thing is to be expected considering the market read the Fed as pushing out its rate hike timeline somewhat, despite feeling better about the economy in general (rate hike timeline affects short maturities most).  How the heck did they accomplish two seemingly opposite goals?

It's all about the dots.  The announcement itself was almost universally hawkish, with the all the changes amounting to a slightly more upbeat commentary on the economic outlook.  But the Fed's economic projections told a different story.  The only thing that really matters here is the "dot plot" of Fed members' rate outlook over time.  The statement can say whatever it wants, but if the dots are moving, markets will read more into that as a gauge of the rate-hike timeline.

In the chart below, y-axis is the estimated Fed Funds rate.  The x-axis is the year.  The dots represent where fed members think the Fed Funds rate will be at the end of the year.  Blue dots are unchanged from the previous forecast.  Red dots are previous forecasts that have changed this time around.  Green dots are where those red dots ended up.  The migration downward should be apparent in this context:

This, and this alone was responsible for a big bounce back in the afternoon.  Some might say Yellen did a good job of not undoing any of the positivity from the reading of the dots, and I'd agree that's a fair assessment.  She walked right down the middle path on almost every question.  I would actually give her some credit as being slightly more dovish in how she discussed the overall rate hike trajectory.  It was as if to say "yeah, we might hike, but that doesn't mean it's a straight line higher from here."