by Calculated Risk on 9/21/2010 03:44:00 PM

Fed Chairman Ben Bernanke suggested in his August 27th speech at Jackson Hole that additional easing would probably require “significant weakening of the outlook” or a meaningful decline in inflation expectations (or further disinflation).

The change to the FOMC statement today on inflation suggests the second criteria might have been met:

"Measures of underlying inflation are currently at levels somewhat below those the Committee judges most consistent, over the longer run, with its mandate to promote maximum employment and price stability."

This was a significant downgrade from the statement last month:

"Measures of underlying inflation have trended lower in recent quarters ..."

The FOMC and staff forecasts will be presented next month (Note: earlier I thought it might be today), and these forecasts will probably be revised down again. That will probably meet the "significant weakening of the outlook" criteria.

Also - the two key economic releases between now and the two day meeting on November 2nd and 3rd are the September employment report (to be released on October 8th) and the Q3 GDP advance estimate (to be released on October 29th). Barring a significant upside surprise in one or both of those reports, it appears QE2 might arrive as early as November.

This statement today was pretty clear: The FOMC "is prepared to provide additional accommodation if needed to support the economic recovery and to return inflation, over time, to levels consistent with its mandate."