Fed - steady as she goes

The Fed acknowledged in its opening statement that the economic recovery "has been insufficient to bring down unemployment." That's to be expected given the uptick in the unemployment rate in November.  But other than that, there were few changes.

Much of what the Fed said was a re-cap of the recent statement: inflation is low, household spending is rising but high unemployment, slow income growth and tight credit are restraining growth.

As expected, the Committee said it will "maintain its existing policy of reinvesting principal payments from its securities holdings....and intends to purchase $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month."

Interestingly, however, the Fed said it "decided today" to continue expanding its holdings of securities as announced in November. Just a few short weeks after making its momentous but well-telegraphed decision, policymakers already appear to be considering adjustments.

There had been some suggestions that a third round of QE might eventually be proposed. But the tax and spending deal agreed to by Congressional Republicans and the White House was quite a bit larger in terms of stimulus than many had expected - think the partial social security payroll tax holiday during 2011.

Though costly in terms of lost revenues, the extra dollars that will end up in paychecks should give the economy a boost next year.  That makes "QE3" a lot less likely.