Fed: no other money untill recession. Or a further decline of the equity market...

The minutes of the 20 September monetary policy meeting - in which the Operation Twist was decided - indicated the FOMC members had different views on the best profile for the monetary policy. While 3 members out of 10 opposed the decision to implement the Operation Twist, two members preferred a stronger policy action, increasing speculation that the Fed may decide a QE3 in one of the next monetary policy meeting (the next one is on November 1-2).

Conclusion: in our view the minutes of the Fed did not give any indication of a further easing of monetary policy at the tail end of the year. The Fomc may decide to implement a QE3 program only in the case the economic outlook would deteriorate strongly and the possibilities of recession further increase. However, the better than expected data released since early October (ISM manufacturing – ISM non-manufacturing – employment report) indicated that the economic outlook in the short term may be better than expected (many economist revised upward their Q3’s GDP estimates after these data were released). For these reasons we do not see a QE3 plan in the short term.