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Thoughts On Wednesday's FOMC Minutes

Wednesday's FOMC minutes for June 20 meeting gave investors nothing to cheer about. The Fed said that they will take additional action (read QE3) if and when appropriate. Basically, the minutes show no additional probability of QE3 than what investors believed or at least hoped for ahead of today's announcement.

Operation Twist and Rates Untouched

The Operation Twist will remain extended throughout 2012 until year end. There were no additional announcements regarding rates - the rates will stay the same through 2014.

Fed Acknowledges Sluggishness

But at least the FOMC members are taking note of slowing economic conditions. The members agreed that some indicators showed smaller than expected increases, and the most important among them was the jobs growth number while the unemployment rate stayed at the same high levels from previous month.

Of course, most stocks dipped a bit ahead of the FOMC minutes and continued to fall further.

Hope for QE3 Remain

The meeting minutes announced on Wednesday were for the meeting that took place in June, before the horribly dismal jobs data came out.

So intuitively one could still have reason to remain hopeful that QE3 is possible. In fact, right after their June 20 meeting, Ben Bernanke had mentioned that the FOMC members will take a close at jobs data and then reevaluate.

Diminishing returns?

However, economists argue that there are diminishing returns of Quantitative Easing. Earlier, Ben Bernanke had also said that more easing will have diminishing returns. In his exact words, Bernanke had said:

"There may be some diminishing returns to further (QE) action. I'd be much more comfortable if Congress would take some of the burden from us."

Conclusion

What will happen still remains to be seen, as Fed plays a tricky game with the investors' minds.

Many Wall Street analysts are still expecting billions of dollars of easing in September. If that happens, the likes of Jeffrey Hirsch will be delighted to see their January Barometer and countless other theories proved true, as the indices start sky rocketing while inebriated in Keynesian liquor (pun very much intended).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.