Fed Minutes Suggest QE3 May Not Arrive Soon

This afternoon’s release of the latest Fed minutes indicated that while Ben Bernanke and his fellow central bankers would consider implementing a third round of quantitative easing (QE3) if the U.S. economy continued to worsen, another money printing program may still be a ways away.

A critical part of the Fed minutes – a recap of last month’s Federal Open Market Committee (FOMC) meeting – included the following text:

“A few members expressed the view that further policy stimulus likely would be necessary to promote satisfactory growth in employment and to ensure that the inflation rate would be at the Committee’s goal. Several others noted that additional policy action could be warranted if the economic recovery were to lose momentum, if the downside risks to the forecast became sufficiently pronounced, or if inflation seemed likely to run persistently below the Committee’s longer-run objective.”

Commenting on the Fed minutes, Peter Buchanan – an economist with CIBC World Markets – wrote in a note to clients that ”On balance, the minutes do not on the surface suggest a sizable body of support for further immediate action, although it should be borne in mind that the comments were made prior to recent data disappointments.”

Buchanan went on to say that “We doubt that the statement contains enough meat on the easing side to satisfy observers who were hoping for more signs of a willingness to launch another round of unsterilized quantitative easing on any signs of deterioration in the growth picture.”

The initial reaction in financial markets appeared to confirm Buchanan’s view, as equities and commodities showed a muted response to the Fed minutes.  The S&P 500 Index fell modestly this afternoon, to an intra-day low of 1,333.25, but soon after rebounded to finish virtually unchanged at 1,341.45.

Gold futures oscillated between gains and losses before stabilizing near $1,575 per ounce as U.S. equity markets closed. Silver futures rose by 0.6% to $27.04 per ounce, while the cyclically-sensitive copper price advanced by 0.9% to $3.43 per pound.

The full version of the Fed minutes is available below:

http://www.federalreserve.gov/monetarypolicy/fomcminutes20120620.htm