Most markets have stabilized after some extreme reactions to the Fed’s deletion of patient from its policy statement and chair Janet Yellen’s press conference performance. Dow futures are close to unchanged and bond prices are down slightly. Of all reactions on Wednesday, the strongest was in the currency market. The euro surged from 106 to as high as 1.10 versus the dollar before retreating to 1.064 versus the dollar on Thursday morning. For the currency market, Wednesday’s was a monumental single-day move.

Yesterday’s response in the currency market shows there are some huge bets on the books in many vulnerable markets. The Fed’s change in the statement to a more dovish than expected tone was a surprise, but it was not the sort of change that should have caused such an upheaval. Big bets at market extremes are the things of which train wrecks are made. We skated by this time, but what could happen if the next major surprise impacts the bond market, which is heavy with huge leveraged bets?

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The Fed took the word patient out of its policy statement, but it gave back much more. After reviewing the Fed’s statement and mulling over the press conference, a few things stand out. It must have taken out patient because it was as tired of hearing about it as the rest of us, but the statement itself was much more dovish than the past several.

The Fed talks about inflation being below target, makes references to worries about the strong dollar, and describes economic activity as having moderated since January. The statement also cites the need for improvement in the labor market, despite month after month of strong growth in jobs. I don’t know where that came from, but Yellen re-introduced slack in describing the job market after eliminating that from both the statement and her own speeches the past few months. The overall tone of the statement and Janet Yellen words and demeanor were night and day from the December statement and press conference.

Click here to continue reading commentary on the bond market’s reaction to the Fed’s statement, federal funds forecasts, and what has spooked the Fed.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.