Just like before the meeting back in June, news outlets have been breathlessly reporting that the Federal Reserve could today launch into another round of quantitative easing, probably including major purchases of mortgage backed securities. Instead, the Fed did essentially nothing, not even changing when it thinks it will start raising rates (still late 2014).
Compared to the last statement from June, the Fed made some mild changes to its language, mostly in a dovish direction. The Fed said the economy has "decelerated somewhat in the first half of the year," but also acknowledged "further" improvement in the housing sector.
In addition, the Fed hinted at potential action at future meetings by saying it will "closely monitor" incoming information and "provide additional accommodation as needed." In other words, the Fed will take action if Europe goes substantially further south or the labor market gets worse. Our best guess is still that a third round of quantitative easing is unlikely.
Once again, the lone dissent from the Fed's statement was from Richmond Fed President Jeffrey Lacker, who opposed reiterating the late 2014 time frame before short term rates will move up.
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Posted on Wednesday, August 1, 2012 @ 2:55 PM
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