Market Falls Hard as Fed Questions QE3; Dow Drops 100 Points

The Fed giveth and the Fed taketh away.

Last week it gav-eth. Today it took-eth.

FOMC minutes released today showed that fewer Fed members are willing to consider a new round of quantitative easing, or QE3. While a “few” members had expressed interest in a new round as of the Fed’s January meeting, only a “couple” thought easing might be necessary at the most recent meeting.

In response, stocks fell hard, with the Dow off about 100 points just a few minutes after the 2 p.m. release. Treasuries also dropped, with yields spiking — the 10-year note was trading at about 2.25%.

The minutes say:

“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.”

The Fed staff also revised up its GDP forecast “a little” and its inflation forecast “a bit.”

“Although the recent data on aggregate spending were, on balance, about in line with the staff’s expectations at the time of the previous forecast, indicators of labor market conditions and production improved somewhat more than the staff had anticipated. In addition, the decline in the unemployment rate over the past year was larger than what seemed consistent with the modest reported rate of real GDP growth…Nevertheless, the staff continued to forecast that real GDP growth would pick up only gradually in 2012 and 2013, supported by accommodative monetary policy, easing credit conditions, and improvements in consumer and business sentiment.”