The FOMC minutes are released tomorrow. Calculated Risk gives us the Goldman Sachs preview:
We expect that the April FOMC minutes ... will include a discussion of possible easing options. ... The first set of options center around the Fed's balance sheet, and we think that the discussion might include the benefits of mortgage purchases, the potential for more “twisting,” and the pros and cons of sterilized asset purchases.
I understand where this comes from - Operation Twist is coming to an end next month, and the two-day meeting in April seems like a natural chance to discuss future options. That said, I am drawn to the minimal interest in this topic in March:
The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run.
Given the last FOMC statement, it doesn't look like the Fed's baseline outlook shifted much between then and the April meeting. And I don't see Federal Reserve Chairman Ben Bernanke's press conference or the most recent Fedspeak as being particularly supportive of additional action. Which leads me to believe that even if the Fed discussed some hypothetical easing options, they will downplay this as conditional on a marked deterioration in economic conditions. I don't think we are there yet. I just don't see much support for additional easing at this point, albeit plenty of support to not tighten either. That said, I would expect market participants to seize upon even the slightest hint of QE3 given the fragility that is currently driven by Europe.