Fed signals end of monetary policy road

WASHINGTON, May 21, 2008 (AFP) – The Federal Reserve sent out signals Wednesday the US economy will have to muddle through its crisis without further rate cuts, even as the central bank slashed its forecast for growth in 2008. Bethune said the “props” from the government’s 168-billion-dollar economic stimulus and tax rebate program will be “pulled out from under the economy” later this year, which could force the Fed to rethink the question of rate cuts.

“From our vantage point it looks very likely like the FOMC will have to lower its (economic) forecast band for 2009 when these forecasts are updated for the September and December meetings of the FOMC,” he said.

“In view of these late-2008 expected downward revisions to the Fed’s central tendency forecast for 2009, Global Insight believes that there is a strong likelihood that the Fed will move to lower rates by about 50 basis points in the final months of 2008.” In minutes released from its April 29-30 policy meeting, the Fed said its decision to cut rates by a quarter point was “a close call” and that the “substantial easing” since last September plus other measures would help underpin economic activity.

At that meeting, the Federal Open Market Committee (FOMC)