Markets were disappointed when the Fed failed to extend its promise
of low interest rates to 2015 and didn't offer signs of QE3. Instead it
said it would “closely monitor incoming information” and that it would
“provide accommodation as needed.”
Bank of America's Michael Hanson writes that Fed officials noted that economic growth had "decelerated somewhat" in the first half but didn't change its expectations for "moderate growth" in coming quarters.
Hanson notes that second quarter GDP growth was weaker than what is implied by the Fed's year-end forecast and he expects another cut to the Fed's forecast which would build the case for another round of quantitative easing:
Bank of America's Michael Hanson writes that Fed officials noted that economic growth had "decelerated somewhat" in the first half but didn't change its expectations for "moderate growth" in coming quarters.
Hanson notes that second quarter GDP growth was weaker than what is implied by the Fed's year-end forecast and he expects another cut to the Fed's forecast which would build the case for another round of quantitative easing:
"Given that Q2 real GDP growth was much
weaker than the Fed’s end-of-year forecast implies, we expect another
downward revision to their forecasts, which should bolster the case for
further easing. The Fed has highlighted their desire for a “sustained
improvement in labor market conditions.” If the two payroll reports
between this meeting and the next are sufficiently soft — payroll growth
below 100,000; the unemployment rate steady or rising — then further
easing would be more likely.
Signs that inflation is likely to remain
below the Fed’s 2% target for a while, or that financial conditions are
deteriorating, would also make further easing more likely.
Conversely, a general improvement in the tone of data releases would decrease those chances."
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