by Calculated Risk on 8/10/2011 01:01:00 PM

It was obvious the Fed would not announce QE3 yesterday. Instead they announced an extended "extended period". But they also hinted at QE3 in the last couple of sentences of the statement:

The Committee discussed the range of policy tools available to promote a stronger economic recovery in a context of price stability. It will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate.

That led Goldman Sachs chief economist Jan Hatzius to write last night: "QE3 Now Our Base Case"

We now see a greater-than-even chance that the FOMC will resume quantitative easing later this year or in early 2012.

Last year, Fed Chairman Ben Bernanke paved the way for QE2 at the Jackson Hole economic symposium. Here is his speech from last August.

This year Bernanke will speak on August 26th at the Kansas City Economic Symposium in Jackson Hole, Wymong.

More from Hatzius:

Although QE3 is now our base case, it is not a certainty. We see three main ways in which our revised call could turn out to be incorrect. First, of course, the economy may turn out to be stronger than our forecast. ... Second, inflation might pose a higher hurdle to additional easing than we have allowed. ... Third, the anti-Fed backlash late last year might argue against further QE.

Earlier Bernanke made it clear that further accommodation would require both a weaker economy and a renewed threat of deflation. Although the economy is weaker than the Fed expected, I think the Fed will wait for more evidence of a threat of deflation.