FT Harding tips half step in August, QE3 in Sep

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The FT’s Robin Harding tips that the Fed will move their low rate pledge out a year to 2015 this week, but will wait for more data before launching QE3.

If short-term interest rates were above zero then the choice would be easy: cut them and offset some of the risk. But the only tools that remain close at hand are quantitative easing – buying securities in an effort to drive down long-term interest rates – or communicating a forecast that rates will stay low beyond 2014. Those actions are less easily reversed.

Put together, this may add up to caution on Wednesday, with perhaps a change in the late 2014 forecast but no more. Waiting would let the Fed see payrolls data for August and September, formally update its economic forecasts, and use Jackson Hole to clarify where it stands.

I think that would disappoint markets.