FOMC Statement May Signal a Pause, But Markets are Not Convinced

The FOMC cuts the federal funds rate by 25bps to 2.00% as widely expected. Two members, Fisher and Plosser, voted against the rate cut, favoring no action. In the accompanying statement, the Fed described the cumulative 325bps cut as "substantial". Also, the Fed noted that "indicators of inflation expectations have risen in recent months." These are taken as affirmation to some analysts that Fed's is near a pause.

However, Fed still noted that "economic activity remains weak" and "tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters." Also, the Fed still noted they will "act as needed to promote sustainable economic growth and price stability."

After all, even though the consensus view is that Fed is close to a pause, opinion on the timing is still divided as today's statement left an unclear impression to part of the markets. That is, whether Fed will be on hold in June is still an uncertainty. This could also be reflected in the fact that interest rate futures are pricing in a slightly higher chance of around 20% for another 25bps cut in June.

This can also be seen in dollar's reaction today. No matter what one might say, the dollar bulls are clearly dissatisfied with the statement and thus the greenback spikes lower right after the release.