Maybe this is why markets didn’t sell off much after the Fed refused to act yesterday.
The best Fed source there is — WSJ’s Jon Hilsenrath — says the Fed is ready to roll on more stimulus.
The decision to make what amounted to a conditional promise of action came Wednesday at the end of the central bank’s two-day policy meeting. In an uncharacteristically strong statement, the Fed said it will “closely monitor” the economy and “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labour market conditions.” Translation: The Fed will move if growth and employment don’t pick up soon on their own.
Others have had the same reading of the Fed.
Here’s what Goldman’s Jan Hatzius saw in the statement:
Our interpretation of the forward-looking language in today’s statement – especially the phrase “will provide additional accommodation as needed” – is that some form of monetary easing at the September 12-13 FOMC meeting is the current baseline. Although easing is by no means a foregone conclusion, we suspect that the incoming information needs to improve materially in order to forestall it. Under our own forecast of a only a slight improvement in output and employment growth, we believe a small easing step – most plausibly a lengthening of the forward rate guidance – is the most likely outcome for September 13, with asset purchases financed by renewed balance sheet expansion following in late 2012/early 2013.
There’s even some deep Fed Kremlinology going on. An economist from TD Securities said the term “closely monitor” is actually Greenspan era code for additional easing soon.
Anyway, the ECB is yesterday’s news. Today it’s all about the ECB.