Fed meeting minutes squash hopes for QE3

(MoneyWatch) COMMENTARY The stock market is not at all pleased with the unequivocal message that runs through the Federal Reserve's newly released minutes from its March 13 monetary policy meeting. Although many have been hoping the central bank will do more to help the economy, the discussion in the minutes makes it clear that the Fed is not ready to try a third round of quantitative easing, or QE3.

Despite the slow recovery, and despite the fact that there is little reason to worry that an outbreak of inflation is just around the corner, the Fed is not inclined to ease policy further through QE3 unless the incoming economic data over the next few months turns unexpectedly negative. 

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That view is not unanimous -- there are members of the Fed who would like to see more stimulus, just as there are those who think the Fed should already have started to reverse policy. The resulting gridlock means that Federal Open Market Committee, the part of the Fed that oversees monetary policy, as a whole does not endorse a change in present policy. 

That is not unexpected given the statements that FOMC members have made recently. But for those of us who think the Fed could and should be doing more and that more action does not carry much, if any, inflation risk, it's disappointing to hear that more action is all but off the table.

But what about the other concern, that the Fed will tighten policy too soon? Is there anything in the minutes to suggest the Fed will abandon its commitment to keep interest rates low through 2014? I am somewhat encouraged on this point. While the Fed is not ready to provide further stimulus, it is also not enthralled with the speed of the recovery and the outlook for the future, which remains subdued. It does not appear that there is any inclination to abandon the interest-rate commitment. That could change if the incoming data are stronger than expected, or if inflation unexpectedly accelerates, but presently this is not a worry.

So for now, it appears the Fed's commitment to keep interest rates extraordinarily low through the end of 2014 will be honored due to gridlock on the committee about the best course of action. Those who think more action is justified are offset by those who think it's time to begin reversing course, and the result of this disagreement is a continuation of the current policy.