The Federal Reserve downgraded its assessment of the economy and declared it "will provide additional accommodation as needed" but announced no new policy action at its policy meeting this week. (Italics added.)
After last week's stories about the Fed preparing to move sooner vs. later, some were disappointed the Fed wasn't more aggressive. But the reality is the central bank is inching closer to another round of quantitative easing, or some other form of stimulus.
"The FOMC is ready to ease and it won't take very much more weakness to justify additional accommodation," writes Dan Greenhaus, chief global strategist at BTIG.
That pretty much sums up the consensus on Wall Street, which helps explains why the stock market's reaction to Wednesday's FOMC announcement was muted. Many market watchers are also eagerly awaiting the outcome of Thursday's ECB meeting at 7:45 a.m. EDT -- many believe the Fed wanted to wait to see what its European counterparts do before taking additional action.
But Dean Baker, co-director of the Center for Economic and Policy Research, is "at a loss to understand what exactly they're waiting for."
Noting the Fed's own forecast that economic growth will remain tepid (at best) and the unemployment rate will come down "only slowly," Baker says "it's a little hard to understand" why the Fed didn't move at Wednesday's meeting. "They're sorta saying they're prepared to do something if it's needed - well, it sure looks like it's needed."
Baker dismissed the idea -- which quickly became conventional wisdom on Wednesday -- that the Fed is keeping powder dry to see what the ECB does, or doesn't do.
"I can't see in any case where even the strongest action of the ECB would warrant the Fed standing still," he says. "No matter what the ECB does, we're still looking at a weak growth picture and high unemployment well into 2013, perhaps into 2014. I don't really see what it is they're waiting for."
No doubt Baker feels the same way about the idea that the Fed is waiting to see another round of economic data -- including two jobs reports -- between now and its next scheduled meeting in mid-September. But he's also not concerned about the Fed having already done too much and argues "we need a devaluation of the dollar" in order to get the trade deficit closer to balance.