There is plenty for investors to chew on in the latest monetary policy statement from the Federal Reserve, released on Wednesday afternoon.
On the one hand, the Fed has now awoken to the reality that U.S. economic activity has “decelerated.” That’s great news for anyone hoping for economic stimulus, perhaps in the form of quantitative easing.
On the other hand, the Fed had nothing to say about QE – other than, well, that they will closely monitor incoming information and provide additional accommodation as needed.
Here’s what economists make of it:
Dawn Desjardins, Royal Bank of Canada: “For now, conditions have not deteriorated significantly enough for policymakers to take another genie out of the bottle. Rather the Fed chose the ‘steady as she goes’ route and left policy unchanged. The July labour report, due out on Friday, has the potential to fulfill the Fed’s condition for additional accommodation being needed if hiring fails to show renewed vigour.”
Paul Ashworth, Capital Economics: “Conventional wisdom suggests that, if the data continues to disappoint, the Fed is most likely to opt for another round of large-scale asset purchases, this time focused on buying mortgage-backed securities. However, we wouldn’t necessarily rule out a cut in the interest rate payable on excess reserves or the introduction of a new ‘Funding for Lending’ programme.”
Paul-André Pinsonnault, National Bank Financial: “U.S. economic data, while not stellar, haven’t been horrible either, being consistent with slow but positive growth. More aggressive Fed action is being saved for later, e.g if the labour market continues to show weak numbers or growth chokes. Chairman Bernanke could use the August Jackson Hole conference to signal more aggressive action, which would be implemented at the Sept. 12 to 13 FOMC meeting (coinciding with newly revised forecasts and Press conference).”
Jim O’Sullivan, High Frequency Economics: “On potential future action, the new statement includes ‘The Committee will closely monitor incoming information on economic and financial developments and will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labour market conditions in a context of price stability.’
That replaced ‘The Committee is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.’ ‘Will’ is somewhat more definitive than ‘is prepared to’ and the ‘closely monitor’ language has been used in the past to signal a strong bias for new action.”
Avery Shenfeld, CIBC World Markets: “In sum, nothing new here, which is what we expected so early in its current term extension program, and we lean slightly towards December rather than September for the adoption of a third round of QE.”