Expectations for a pause in U.S. monetary policy were bolstered by an article in Thursday�s Wall Street Journal, where noted Fed watcher Greg Ip said, "The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week -- but then may be ready for a breather."
However, the Journal article also points out that a pause in rate cuts would not necessarily signal the end of the financial turmoil in the U.S. economy. "It is almost certain to signal continued concern about economic growth and a willingness to cut rates further if the outlook worsens," Ip wrote.
The FOMC will announce its rate decision on April 30. Economists expect a 25bp cut to bring the Fed funds rate to 2.00%.
Ip also said the Fed is concerned that further easing could aggravate rising inflation expectations as food and oil prices soar to new records. Concerns about inflationary pressures �means the option of standing pat will likely also be on the table,� Ip wrote.
Fed fund futures imply a 90% chance of a 25bp cut with a 10% chance of no change. Looking further out, futures show a 19.8% chance of a second cut at the June 25 FOMC meeting, unchanged from a day earlier.
By Adam Button and edited by Nancy Girgis