Federal Reserve's June minutes disappoint anyone hoping for a quick move to another round of quantitative easing

07/11/2012 2:51 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Financial markets wanted the Federal Reserve to say that another round of quantitative easing was on its way—soon.

But the minutes from the June 19-20 meeting of the Federal Reserve’s Open Market Committee didn’t say that and U.S. stock markets have moved modestly lower on the disappointment. Only modestly, I think, because most traders regarded anything stronger on more economic stimulus an outside bet today. As of 2:20 New York time today the Dow Jones Industrial Average was down 0.85% and the Standard & Poor’s 500 was down 0.28%.

What the minutes do show is a Fed that is worried about the slow pace of growth in the U.S. economy and in the jobs market, but that doesn’t seem inclined to do anything unless the economy loses even more steam. The Fed still sees the evidence pointing to a temporary summer slump rather than a more serious deterioration in growth with the economy likely to pick up speed (very gradually) in the last two quarters of 2012.

The minutes do also show that the Federal Reserve is increasingly concerned about the drag from the continued euro debt crisis and that the Fed calculated that the risks to the U.S. financial system from that crisis had increased since the Fed’s April meeting.

In short, nothing in these minutes to suggest that the Fed is about to do anything beyond the extension of its Operation Twist program of buying longer-dated Treasury bonds that it announced at the June meeting.

The next meeting of the Federal Reserve’s Open Market Committee is scheduled for August 1. That’s getting awfully close to the presidential election and the consensus on Wall Street is that the August 1 meeting is really the last chance for the Fed to do something before the November vote. On the basis of today’s minutes, doing nothing on August 1 seems the most likely course.
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