Fed Will Ease Unless Economy Improves

      At least they're clear on their criterion for future action. In the past it seemed that they were waiting to see if things get worse before they act. Now they are saying they will unless things get better. So no doubt the market will now have an expectation that the Fed will ease in late September unless things improve.

     This is what the Fed minutes showed and after hearing this the market started to reverse off its lows.

     "While the meeting was held before a recent improvement in the economic data, including a stronger-than-expected July reading for U.S. employment, policymakers were pretty categorical about their dissatisfaction with the current outlook."

      "Following the release, U.S. stocks pared losses, and U.S. Treasury debt prices extended price gains.

"Many members judged that additional monetary accommodation would likely be warranted fairly soon unless incoming information pointed to a substantial and sustainable strengthening in the pace of the economic recovery," the Fed said in minutes to its July 31-Aug. 1 meeting. "

      "Fed officials saw significant risks to an already weak U.S. economy, which grew at a sluggish 1.5 percent annual rate in the second quarter. The risks include a worsening of Europe's financial strains and the looming U.S. budget cuts and tax hikes, which have become commonly known as the fiscal cliff. "

      "Many Fed officials supported extending the central bank's guidance for the likely timing of an eventual interest rate hike, currently set at late 2014, further into the future. But they decided to defer the decision to the Fed's Sept. 12-13 meeting, when the central bank will release a new round of economic forecasts.

Officials also actively debated and tested the possibility of developing a consensus Fed forecast."

       "A couple of policymakers favored lowering the rate the Fed pays banks to park their excess reserves at the central bank, currently at 0.25 percent. But several participants worried that money market funds could run into trouble if their returns are crimped further."

     http://www.cnbc.com/id/48753317

     Yeah the old debate over IOR-Suner's hobby horse. Some are skeptical that it would have any positive impact-particularly the MMTers who argue that it has no positive effect as reserves don't create deposits.

      So it would seem that we will either see an improved economy or more Fed action next month. Not a bad either-or.