May 21 2008 - Rate Brief

Fed Wait a Minute

The Fed will remain on hold on rates as they watch the numbers down the pike. The FOMC minutes provided a look at where the Fed’s collective head was at back in late Apr (when crude was running at a then record 113.50, the CRB commodity index at 409).  The minutes offered concern over inflation and little chance of any more rate cuts any time soon.  The move to cut rates Apr 30 was characterized as a “close call” but the move was made was on an 8 to 2 vote, so maybe not too close. 

While knocking up inflation expectations, and knocking down growth, the crew called the threats “more closely balanced.” The policy-posse ratcheted down its range of estimates for growth in 08 from their previous expectations, looking for 0.3% to 1.2% versus their 1.2% to 2% estimate back in Jan.  They aired concerns over employment as well, as payrolls “had fallen for the third consecutive month…The restraint on spending emanating from weakness in labor markets was expected to increase over coming quarters, with participants projecting the unemployment rate would pick up further this year and to remain elevated in 2009.” 

Previous improvement in inflation “probably reflected transitory factors…the increase in crude oil prices to record levels together with rapid increases in food and import prices I recent months, was likely to put upward pressure on inflation.” That was well before 134.00 crude…