Fed waiting to see which way the recovery breaks

Next Tuesday's FOMC meeting (13th March) is expected to be a quiet affair, with Fed officials waiting to see whether the recent improvement evident in the labour market develops into a more vigorous expansion in incomes and expenditure. In his semi-annual monetary policy testimony last week, Fed Chairman Ben Bernanke offered no hint that the FOMC was still seriously considering introducing a third round of large-scale asset purchases, at least not in the near term. We could still see a so-called QE3 later this year, even in the run up to the Presidential election in November, but only if the recovery stalls again.