Today's FOMC Meeting: We Could Wait Four More Months for Action

The U.S. Federal Reserve continued its wait-and-see stance today (Wednesday) and remained in idle mode when it said and did little at the conclusion of its two-day Federal Open Market Committee (FOMC) meeting.

The central bank decided to leave rates unchanged, reiterated it would leave rates low through at least 2014 (not extending them to 2015 as expected) and did not announce a third round of quantitative easing.

The Fed chiefs did, however, voice that should conditions warrant, they are ready to step in and take aggressive steps to bolster the U.S. economy.

PIMCO's leader Bill Gross told CNBC that "a changing in policy landscape can be expected in a month or so."

That could be when the Fed convenes again in September, or later this month when it meets at Jackson Hole, WY.

But the likely scenario is that the Fed will wait to employ another stimulus method until after the November elections. Today's modest action mirrors that of 2010, when QE2 did not start until after the mid-term elections in November.

Instead, by deciding to extend "Operation Twist" until the end of the year, the Federal Reserve is continuing its role of not influencing the U.S. elections, but doing what it has to be done to maintain a low interest rate environment in the global economy.

Investors: Not Shocked - But Not Happy

QE3 is coming, in one form or another. Operation Twist is merely a stop-gap measure to try to align the balance sheet maturities of the securities held by the Federal Reserve until after the election.

Look for messages from the Federal Reserve to have a much more substantive nature later this month when Bernanke gives his speech at Jackson Hole, and after the election in November when the American people speak at the voting booths across the nation.

Investors had expected little, but hoped for more than what they got. Market reactions were subdued compared to the market frenzy triggered by previous FOMC meetings.

The Dow Jones immediately dropped, then pared losses some, ending the day down only 32 points to 12,976.13. Gold, silver, platinum and palladium meanwhile all treaded lower following the announcement.

"Kind of a disappointment," Nicholas Colas, chief market strategist at Convergex Group, told CNBC. "The market was hoping for more news on QE or a longer time frame for not raising rates. It was very status quo at a time when people are saying the economy is getting worse."

The Fed noted that economic activity since the June FOMC meeting "decelerated somewhat" over the first half of the year, employment growth has slowed and unemployment remains elevated. Household spending has slowed, and despite some sign of improvement, the housing sector remains depressed.

Since the last meeting, food and energy prices have surged, and an epic drought affecting more than half of the country will only push prices higher. Unemployment remains at an unhealthy level and Europe's woes continue to weigh on the U.S. economy.

But as bad as all that sounds and looks, it wasn't bad enough for the Fed.

Ahead of the decision, Jim O'Sullivan, chief U.S. economist at High Frequency Economics, told CNN Money, "The data continues to be weak enough to move the Fed closer to new action, yet probably not weak enough to force a quick decision so soon after Operation Twist."

That's why a change in policy is much more likely later in 2012.

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