The WSJ’s incomparable Hilsenrath reports that:
The Fed is trying to ease financial conditions without taking the more controversial step of increasing the amount of money that it’s pumping into the financial system, since it will be using money already generated from other programs
The more potent step of launching a new round of bond purchases that would further expand the Fed’s $2.867 trillion balance sheet remains a possibility, but inflation likely would need to slow much further to spur Fed officials to take that step.
The FT’s excellent Harding spotted that the programme left no room for additional twisting if further easing is required.
The decision to launch such a large twist means that the Fed has almost no scope to increase the size of the policy further. If it wanted to ease monetary policy further in the future by buying more assets, it would probably have to increase the overall size of its balance sheet.
Given that i think the fed will ease further, this makes me pretty sure that the Fed’s next move is further balance sheet expansion. QE2 didn’t do much, this will do less – but Bernanke has committed to keep on trying.