Now that the U.S. Federal Reserve has released the minutes from its last monetary policy meeting, at the end of April, observers have been quick to interpret them: Forget about another rate cut.
In the minutes, the Fed noted that the decision to cut its key interest rate by 25 basis points (or a quarter of a percentage point) to 2 per cent was a “close call”: Some of the improvements in recent readings on inflation were seen as transitory, with record-high oil prices and steadily rising food prices putting upward pressure on inflation; at the same time, the risks to economic growth were skewed to the downside.
Indeed, the Fed lowered its growth projections in the minutes. Out goes 2008 gross domestic product growth between 1.3 per cent and 2 per cent; now, that growth has been downgraded to just 0.3 per cent to 1.2 per cent.
“Near-term upward pressure on inflation + Near-term downward pressure on growth = Close call on rate cut,” said Michael Gregory, an economist at BMO Nesbitt Burns, in a note. “The Fed is now in a pause mode.”
Jon Ogg, writing on the 24/7 Wall St. blog, added up the Fed's comments and came to a slightly different conclusion – one that emphasized low growth and rising inflation.
“The Fed has signalled that the rate cutting cycle is over, or so it would seem,” Mr. Ogg said. “If you want an economic term that describes the above scenario, that is called STAGFLATION.”
