Today, the minutes of the FOMC meeting in April were released. According to Bloomberg, most Federal Reserve officials viewed the April 30 decision to cut the target rate a “close call” as some members believed the balance between slower growth and inflation risks had become more leveled out.

Members said it was “unlikely to be appropriate to ease policy in response to information” as the economy was slowing or even contracting in the short term.
 

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Two Ways To Play: Interest Rates Get Cut Off at Knees?
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Further, the minutes suggested policy makers would pause in further rate reductions as soaring energy costs and rising expectations of inflation threatened price stability. All this while consumer spending growth “appeared to have slowed to a crawl in recent months and consumer sentiment had fallen sharply.”

The FOMC raised its core inflation, less food and energy, expectations in the range of 2.2-2.4% versus previous expectations of 2.0-2.2%. GDP forecasts for 2008 was also cut to +0.3-1.2% from 1.3-2%.

For the next meeting scheduled June 25th, traders see a 92% probability that the Fed will leave interest rates unchanged at 2.0%.

From the Bull Pen: Did the Fed just spell out stagflation? Slower or negative growth in concert with higher costs? Bulls are thinking gold and might look to these traditional hedges against inflation: Gold ETF (GLD) or the gold miners ETF (GDX).

From the Bear Cave: Can the consumer keep up with these soaring prices? Bears might see good risk reward downside trades in a retail play like Fossil (FOSL).


We’re over the hump. Finish the week strong! Good night!