Fed does a little moonwalking

In a Nutshell: "The Committee will closely monitor incoming information on economic and financial developments in coming months."

Rate Decision: Fed funds rate maintained at a range between 0% and 0.25%

Quantitative Easing Decision: Bond purchases remain at $85 billion

For all those looking for clear guidance on when quantitative easing will end, well, you will have to wait a little longer. Indeed, there may have been some walking backwards today.

While the Committee's statement was largely the same as the last one, there were with some real changes. First, the economy was described as expanding "modestly" rather than "moderately". That is significant as we can live with moderate growth but modest is a worry. There was also a mention about higher rates and housing. The members sounded a touch more concerned about the expansion. It is doubtful a lot of people are confident about growth.

The second difference had to do with inflation. While expectations remain that inflation will revert to its desired 2% goal "over the medium term", "the Committee recognizes that inflation persistently below its 2 percent objective could pose risks to economic performance". There are members on the Fed who are focusing more on too low rather than too high inflation. The Fed does not want too slow growth and decelerating inflation. That would require more stimulus.

Finally, when it came to ending QE, the guidance about tapering the program didn't show up. Mr. Bernanke had indicated "the Committee currently anticipates that it would be appropriate to moderate the monthly pace of purchases later this year." He didn't tell us that this time. Is that meaningful? The Committee knows that anything included or excluded will be parsed carefully and this was left out.

So what do I make of all this? The markets were looking for clear guidance on quantitative easing. They got none. The Fed hedged on the economy, expressed concerns about low inflation, raised the issue of higher mortgage rates and left out any signal on changes in policy. I would say that this is a bit of a backtracking on what was said after the last meeting. It is still possible that QE tapering will start after the September meeting but the probability has been reduced. We will likely start seeing some cut backs by the year's end but it might not come until the end of the year.

With the impact of rates on housing not likely to be known until the fall, with Congress threatening more sequestration and a showdown on the debt ceiling and with inflation so low, it only makes sense for the Fed to watch and wait for a while. There is nothing to lose if tapering starts in the winter rather than the fall. The markets want what they want but the Fed does what it wants to do and so right now, I think the chance of tapering in September has dropped significantly.