If you are hoping for already-low interest rates in the U.S. to go lower, you better look at the FOMC minutes from the last meeting.
In the minutes, even though the FOMC noted that the decision to cut rates in April was a close call as financial conditions were better but still fragile. They noted a bleak housing market and a dead U.S. consumer. They also noted a higher unemployment forecast for 2008 and 2009, with the old forecast of 5.2% to 5.3% going to 5.5% to 5.7% for 2008.
Interestingly enough, the FOMC now sees 2008 GDP in a range of +0.3% to +1.2%, down from +1.3% to 2%. It is still maintaining a +2$% to +3% range for 2009 and 2010. Do they already know who won the presidential election? They do at least note that there are greater downside risks to their growth forecasts.
On the inflation front, the FOMC noted that inflation expectations are a key upside risk, and food and energy will continue to drive inflation.
The Fed has signaled that the rate cutting cycle is over, or so it would seem. If you want an economic term that describes the above scenario, that is called STAGFLATION.
Jon C. Ogg
May 21, 2008