Last week, the Fed’s Open Market Committee said thepace of the economic recovery had "slowed" and that growth "islikely to be more modest in the near term than had beenanticipated. The Fed announced it was going to take someof the payments it has received from CMBS bonds and other assets itpurchased as part of the stimulus, and reinvest themin Treasuries – effectively holding down mid-term interest rates - in an attempt to stimulate the economy further. The Fed notedthat high unemployment, modest income growth, lower housing wealthand tight credit were holding back household spending.

Sudeep Reddy of the Wall Street Journalexplained succinctly how the Fed’s plan is supposed to work:

• "After cutting short-term interest rates nearly to zero inDecember 2008, the Fed essentially printed money to expand itsportfolio of securities and loans to above $2 trillion, from $800billion before the global financial crisis. Its purchases ofmortgage-backed securities and U.S. Treasury debt, aimed at keepinglong-term interest rates down, were discontinued in March. The Fedbegan talking about an "exit strategy" from the unprecedented stepsit took to prevent an even deeper recession.
  
  But on Tuesday, the Fed shifted its stance. It said it would act tokeep its securities holdings constant at around $2.054 trillion,the level on Aug. 4. Had the Fed not acted, its mortgage portfoliowas set to shrink by $10 billion to $20 billion a month, asmortgages matured or were paid off early. Now, the Fed willreinvest those proceeds in U.S. Treasury securities of between two-and 10-year maturities.
  
  Some Fed officials have been uncomfortable with the size of theFed's position in the mortgage market. To assuage their concerns,the Fed won't be enlarging its mortgage holdings."

Will this further stimulus work? No one knows. Butthis move is generally not being seen as a good sign for an economywe’ve been repeatedly told is recovering.

The idea that the "recovery" isn’t going so wellhas been common for months across the bleaker reaches of theeconomic blogosphere (such as the comments sections of theCalculated Risk blog, or the ZeroHedge blog, or David Rosenberg’swell considered newletters for Gluskin Scheff -- where he suggeststoday that we may not be headed for a double dip because therecession may not, in fact, have ever ended).