FOMC Minutes Hint Rate Cuts Over

The minutes from the April 30 FOMC meeting were released Wednesday and - surprise, surprise - they held a few surprises.

There was an acknowledgment that the decision to cut the fed funds rate 25 basis points at the April meeting was a "close call." 

Additionally, there was the most telling revelation for the market that the "...risks to growth were now thought to be more closely balanced by the risks to inflation" and that several members noted it was "... unlikely to be appropriate to ease policy in response to information suggesting that the economy was slowing further or even contracting slightly in the near term, unless economic and financial developments indicated a significant weakening of the economic outlook."

Altogether the minutes seemed to suggest that there was more attention to the inflation situation among Fed members than market participants previously believed.

Mindful of that, the understanding that oil prices have risen approximately 17%, that the dollar index has declined 0.7% and that the TIPS spread - a measure of long-term inflation expectations - has widened from 228 basis points to 254 basis points since the April 30 meeting have all played into the stock market's negative perspective on the FOMC minutes.

The prevailing message of the minutes for the stock market is that we have very likely seen the end of this rate-cutting cycle.  You can never say never, but that thinking helps explain why there was a sharp move lower immediately following their release.

Separately, the Fed revised its GDP, unemployment and inflation forecasts for 2008, 2009 and 2010.  These updated forecasts, referred to as the central tendency of participants' projection, are as follows:

--Patrick J. O'Hare, Briefing.com