by Calculated Risk on 7/24/2012 04:34:00 PM

From Jon Hilsenrath at the WSJ: Fed Sees Action if Growth Doesn't Pick Up Soon

Federal Reserve officials, impatient with the economy's sluggish growth and high unemployment, are moving closer to taking new steps to spur activity and hiring.

Since their June policy meeting, officials have made clear—in interviews, speeches and testimony to Congress—that they find the current state of the economy unacceptable. Many officials appear increasingly inclined to move unless they see evidence soon that activity is picking up on its own.

Amid the recent wave of disappointing economic news, conversation inside the Fed has turned more intensely toward the questions of how and when to move. Central-bank officials could take new steps at their meeting next week, July 31 and Aug. 1, though they might wait until their September meeting to accumulate more information on the pace of growth and job gains before deciding whether to act. ... There are several reasons why Fed officials might wait for their September meeting to decide whether to proceed. By then they will have seen two more monthly unemployment reports and two more months of data on output, spending and investment. Fed officials update their economic projections at the September meeting and Mr. Bernanke holds his a quarterly news conference after, which would give him an opportunity to publicly explain the Fed's thinking.
...
A new round of bond-buying would be politically controversial so close to the November presidential election. ... Another option is a change in the Fed's public communication about its plans.

There are arguments for waiting until September (more data, updated projections), but I think there is a reasonable chance they will move on August 1st since their current projections are already unacceptable - and the data has been mostly disappointing since their last meeting.

The Q2 GDP report to be released on Friday will be an important piece of data - not just the Q2 growth rate, but the annual revisions. If GDP is revised down, then that would suggest a larger "output gap" - and that would probably influence many FOMC members to vote for more accommodation now.