After the FOMC cut rates 25 bps to 2.00% on April 30 and signalled a pause in monetary policy loosening, economists will be attentive to any commentary explaining the short- and long-term inflation outlook in the United States in the release of the FOMC's minutes on Wednesday.

Dawn Desjardins, assistant economist at RBC, expressed concerns about "inflation and indications that inflation expectations have been on the rise in recent month in late April, although policy-makers retained a forecast that inflation will moderate."

Desjardins expects the FOMC to update its inflation forecast, which is expected to rise to 2.2% in 2008 before falling between 1.7% and 2% in 2009 and remain in the 1.7%-to-1.9% range in 2010.



BMO economist Sal Guatieri echoed this view, saying: "Barring another spill in the economy or markets, policy-makers are content to sit back in an extended holiday."

Gautieri is awaiting any statement that would indicate any changes in the current outlook on inflation. He is particularly interested in seeing if dissenting opinion amongst Fed voting members will have impact by curbing any future rate cuts.

"By providing a sense of whether the members are slightly more worried about the outlook for growth than inflation, the comments might clarify just how balanced the Fed's implicit neutral bias is," Gautieri wrote in a report.

Despite inflation pressures in the United States, some economists think the Fed will continue to cut rates.

Guy LaBas, fixed income strategist from Janney Montgomery Scott, said he will be looking at the FOMC minutes for any discussion regarding talk about removing the "downside risk" comment. "Is removing that statement a true way of signalling an end to the easing, or is the Fed trying to create more flexibility?" he said.

LaBas said he is still expecting the Fed to cut 25 basis points either in June or August. He added that a lot of data will be released prior to the next FOMC meeting, which could lead the Fed to cut rates.

"My outlook on the economic growth in the U.S. is relatively dim. I think the Fed will continue to act on those risks, perhaps not as aggressively as they have in the past," he said.

RBS Greenwich Capital government bond strategist David A. Ader wrote the following: "And tomorrow's FOMC minutes? We're curious, too, but in light of the litany of Fedspeak last week we can't imagine what the minutes will reveal that the more timely comments didn't. Point being, Fed fund futures are not going to price in more hikes on the report and, small risk, that they may price out some of the odds that's been priced in."

By Steve Stecyk and edited by Nancy Girgis