Instant View: Fed revamps rates guidance, trims bond buys further

NEW YORK (Reuters) - The Federal Reserve on Wednesday dropped the U.S. unemployment rate as its definitive yardstick for gauging the economy's strength, and made clear it would rely on a wide range of measures in deciding when to raise interest rates.

KEY POINTS:

* Fed dropping its promise to hold rates steady "well past the time" the U.S. unemployment rate falls below 6.5 percent doesn't indicate any change in the Fed's policy intentions.

* Fed cuts monthly purchases of U.S. Treasuries and mortgage-backed securities to $55 billion from $65 billion.

* Fed's assessment of the U.S. economy chalked up recent weakness to adverse weather.

COMMENTS:

WAYNE KAUFMAN, CHIEF MARKET ANALYST, ROCKWELL SECURITIES, NEW YORK

"So far this is just what the market wanted?the Fed staying accommodative. It doesn't look like too much has changed, although dropping the 6.5 percent unemployment rate might be a key issue. Yields are jumping up right now, which might be a sign that people think Yellen will tighten sooner rather than later, or that inflation could come into the market if the Fed keeps rates low well past 6.5 percent."

BRUCE McCAIN, CHIEF INVESTMENT STRATEGIST, KEY PRIVATE BANK, CLEVELAND, OHIO

"At this point, there are relatively few surprises. I think in some sense, as the Fed tapers it becomes less important for the market. What becomes more important from here is whether the economy can recover its momentum once the weather issue thaws. One of the headlines I saw was that a majority of members do expect a rate hike. I think that's a little disappointing for investors. In addition, if we replace the 6.5 percent rate with a variety of indicators, that makes Fed actions less predictable, which adds to the market uncertainty."

PAUL MANGUS, HEAD OF EQUITY RESEARCH AND STRATEGY, WELLS FARGO PRIVATE BANK, CHARLOTTE, NORTH CAROLINA

"The one difference I could see early on was a little bit more information on when and by how much the Fed may increase rates in 2015, which is a long way off yet. Other than that, we expected to hear more about a wider range of economic indicators beyond the unemployment rate and that was in the release, so that was not a surprise. The economic information that was supplied was also pretty much as expected, mentions of weaker labor markets earlier in the year due to weather conditions but showing signs of improving. Other areas of the economy are continuing to show signs of gradual improvement, but the Fed was looking for a much stronger economic background before it would start any type of tightening efforts, so it would continue to support liquidity in the marketplace."

MARKET REACTION:

STOCKS: U.S. stock indexes edge lower

BONDS: U.S. bond prices add to losses, yields rise

FOREX: U.S. dollar adds to gains against major currencies

(Americas Economics and Markets Desk; +1-646 223-6300)