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The Federal Reserve signaled disappointment with the economic performance and announced an extension of Operations Twist that was set to be completed this month. It will do another $267 billion selling of short-end and buying of the long end through the remainder of the year. There was no MBS twist on twist, so to speak.

The Federal Reserve acknowledged the slowing down in the job growth and a slower rise in household spending. The Fed recognizes significant downside risks to the economy and, of course, promises to act as needed.

The real sense of the economy will be borne out later this afternoon when the Fed updates economic forecasts last made in April. The Fed is likely to cut its mid-point growth forecast from 2.6% to something close to 2%. The slower growth means little improvement in the labor market, where the Fed mid-point forecast was for 7.9% unemployment rate at the end of the year and 7.5% in 2013 and 7.1% in 2014. These might be left alone, for the time being. The Fed is also likely to leave its core PCE estimate unchanged at 1.9%. It will be an important signal if the Fed raises its unemployment forecast and cuts its inflation forecast.

The Fed's Lacker dissented, objecting to the continuation of Operation Twist. Once again, Bernanke chose to act over achieving unanimous support.

The dollar was rising before the actual announcement and the stock market was coming off. Both extended the moves in the immediate response to the Fed's middle ground between doing nothing and QE.

By the Fed committed to doing Operation Twist until the end of the year, it would seem to raise the bar to QE ahead of the elections, meaning while not impossible, of course, unlikely.

Source: Fed Twists And Shouts, But No QE