Highlights
The FOMC cut the fed funds rate by 25 basis points to 2.0 percent as expected but not all FOMC members agreed to the cut and a pause may be under way. The vote was 8 to 2 in favor with Dallas Fed President Richard Fischer and Philadelphia Fed President Charles Plosser dissenting, preferring no change at this meeting. The Fed has cut the fed funds target rate seven times this rate cutting cycle starting on September 18, 2007 for a cumulative cut of 325 basis points. The discount rate also was cut by 25 basis points today and is now 2.25 percent. The FOMC statement noted both risks to growth and to inflation and does not appear to indicate a bias either way while at the same time maintaining flexibility for further rate cuts.

Indeed, the FOMC appears to be as concerned about inflation as about too weak growth. The minutes start out focusing on risks to growth, pointing to sluggish consumer and business spending and credit crunch related issues.

"Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters."

Indicating concern about inflation risks, the statement calls attention to headline inflation and commodity prices. "Although readings on core inflation have improved somewhat, energy and other commodity prices have increased, and some indicators of inflation expectations have risen in recent months."

But the Fed may be signaling a pause in that the statement indicates the FOMC members' expectations that with current policy (taking into account the cumulative cuts through today) that both inflation will ease and growth will return to a moderate pace over time.

"The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization."

"The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity."

These two statements combined are about as close as one can get to the Fed explicitly stating that risks are balanced - the Fed only recently began to not explicitly state its policy bias in the statement. As usual, the Fed stated it will continue to monitor economic and financials developments and will as act needed.

The bottom line is that the Fed likely is pausing in the rate cutting cycle - at least until incoming economic data come in worse than expected. Combined with a slightly favorable GDP report this morning, markets in general should be pleased. The rate cut today and better-than-expected growth will support equities. The likelihood of no further rate cuts should support the dollar and help long-term rates nudge down.

The next FOMC meeting announcement is scheduled for June 25.

2008 Release Schedule

Released On: 1/30 3/18 4/30 6/25 8/5 9/16 10/29 12/16