Fed Out of Bullets

If you're new here, you may want to subscribe to my RSS feed. Thanks for visiting!

The Federal Reserve minutes showed that the members of the board are unlikely to act with further monetary policy easing even if weakness continues or worsens. Is the Fed officially out of ammo or are they just putting rate cuts behind “break in case of emergency” glass?

From Market Watch on the Fed minutes:

There was a lack of desire expressed at the Federal Reserve policy meeting for additional rate cuts in June or beyond, especially in light of the inflation outlook, according to an official summary of the meeting released Wednesday. Even more signs of weakness would not be a reason for addition cuts, the minutes said. “[S]everal members noted that it was unlikely to ease policy in response to information that the economy was slowing further,” according to the summary.

Fed officials did vote to cut rates at quarter-point at the April 29-30 meeting, but that was viewed as a “close call.” FOMC members were clearly worried about the inflation outlook. Their forecast for headline inflation as measured by the personal consumption index jumped to a range of 3.1 to 3.4%, much higher than their previous forecast of a 2.1 to 2.4% rise.

The risk of higher inflation was just about even with the risks of an economic downturn, members said. Fears of an economic meltdown from a credit crunch had lessened, members added.