In a widely expected move, the Federal Reserve last week lowered its fed funds rate by one-quarter percentage point. But it also indicated it may stand pat at its next meeting after seven straight rate reductions since September – cuts aimed at combating the housing slump and the credit market crisis.
How do analysts interpret the Fed’s decision? Those in the business of reading the central bank’s signals last week felt the Fed would, indeed, lean toward leaving interest rates stable.
According to Scott A. Anderson, senior economist at Wells Fargo Economics, "the Fed may further ease off the monetary accelerator (meaning no rate cut) come June, preferring to monitor the monetary medicine already administered and how it interacts with the fiscal stimulus package."
Sean Simko, head of fixed-income management at SEI Investments, says the Fed rate-makers "want to note that they've done a lot and they're going to let the data guide them over the next few weeks."
"The market was looking for...a stronger signal of a policy pause," says Nick Bennenbroek, head of currency strategy at Wells Fargo Bank. "We suspect it is that lack of that direct signal that is contributing to the dollar's dip."
Peter Hensman of Newton Investment Management believes the improvement in market conditions “is likely to be sufficient to convince the Fed to pause the rate-cut cycle for now." But, he adds, “with the employment situation deteriorating it seems premature to assume that the next move from the Fed will be to increase rates."
In a statement, the Fed cited its "substantial" action to date and dropped a previous reference to downside growth risks. Fed watchers usually interpret a reference to cumulative actions as a sign that officials are wary to lower rates further.
The statement also said "economic activity remains weak" and markets "remain under considerable stress" - but it also indicated that inflation would likely moderate in coming quarters, as energy and other commodity prices level out.
– By Ed Coury, senior editor and Midwest bureau chief for the Wall Street Journal Radio Network, Dow Jones & Co., and a reporter for WWJ Newsradio 950. This report contains information previously published by Dow Jones Newswires.
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