Yesterday's update of the Federal Reserve's quarterly economic forecast is a minor triumph for optimism. The central bank still expects that US GDP in 2015 will increase in the range of 2.6% to 3.0%, unchanged from its previous estimate in September. That's a mild expansion, but it's a step up from the Fed's 2.3%-to-2.4% GDP outlook for this year. In a word, progress. Forecasting year-ahead GDP is subject to any number of risks, of course, and so it's best to take the Fed's prediction with a grain of salt. Yet it's clear that the bank's policymakers are becoming more confident that the US economic expansion will strengthen a bit in the year ahead. Events abroad may intervene and render the current outlook null and void, but based on what we know today the US macro trend is on track to start the new year with a moderately improving tailwind.

Reflecting the optimism, Fed chair Janet Yellen said in yesterday's press conference that the market's recent expectations for a mid-2015 rate hike remain valid. The end is near for the near-zero policy for the Fed funds rate. Some analysts have been speculating lately that the central bank would delay the rate hike due to increased geopolitical risks and a wobbly global economy ex-US. But Yellen effectively told the crowd that the game plan is still intact for the first rate hike in six months, give or take .

The market reacted accordingly. The yield on the 2-year Treasury — widely viewed as the most sensitive spot on the yield curve with regards to rate expectations – rose moderately to 0.62% yesterday, which is close to a three-year high. The 10-year yield also rose, suggesting that the year-long slide for this influential benchmark rate may have bottomed out.

Nonetheless, it's premature to assume that the Fed's plans for tightening in mid-2015 are written in stone. Reflecting the still-cautious outlook, the market's implied inflation forecast, based on the nominal 10-year yield less the yield for the 10-year TIPS, remained unchanged yesterday at 1.65%, which is near a four-year low. It's reasonable to argue that the Treasury's market's expectation for low/declining inflation is primarily driven by offshore concerns. Nonetheless, the US isn't completely immune to the disinflation/deflation bias that's stalking the global economy, a hazard that's especially conspicuous in the Eurozone and Japan.