The media interpretation of yesterday’s Fed statement is that more QE is planned for November. Perhaps I have got this one wrong. I thought that doing more was not politically feasible and would anyway have an uncertain effect on the unemployment problem. Maybe the Fed is more focussed on the danger of deflation that I thought, and is prepared to take further action to prevent it. That interpretation is consistent with their not rushing to implement more QE now — deflation is not happening now, and just the expectation of further QE should support inflation expectations. A few negative announcements on the economy in the next couple of months will allow them to build political capital for the move and prepare the markets.

What is wrong with this picture?