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Fed won't overreact to signs of slowdown

We doubt that the signs of a renewed economic slowdown will prompt any knee-jerk reaction from the FOMC at its two-day policy meeting, which concludes next Wednesday (22nd June). The accompanying statement is bound to acknowledge the evident loss of momentum, as will Fed chairman Ben Bernanke in his second post-meeting press conference. Nevertheless, given that the slowdown could be due to temporary factors, that the imminent threat of deflation has eased and taking into account the mixed results of QE2, we see little prospect of QE3, at least not this year.

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