Fed will remain paused at 5.25% for the rest of this year and next

Now that we have two consecutive Fed FOMC meetings behind us with no change in monetary policy and inflation has started to taper off, we now have a little breathing room. The economy and inflation will wiggle around in the coming months, but nothing dramatic enough to warrant a change in course by the Fed.

As of Friday, Fed funds futures contracts indicate a 0% probability of a further rate hike and only a 2% chance of a cut at the October FOMC meeting. Futures indicate a 14% chance of a cut at the December meeting, a 40% chance of a cut at the March meeting, 100% chance of a cut by the June meeting, 20% chance of a second cut by the July meeting, and 66% chance of a second cut by the August meeting. I personally don't concur with those odds, but that is how a lot of people are actually "betting." I would simply note that such betting can change on a moment's notice as economic and financial data unfolds. I suspect a lot of those bets are based on a presumption that the housing sector will seriously collapse.

My recent Fed commentary will probably hold for some months to come.

My view is that the Fed will keep their fed funds target rate paused at 5.25% for at least the rest of the year, and probably for the entire coming year.

It is also my view that there will not be a recession next year, nor even enough of a growth slump to trigger a Fed rate cut.

Upcoming Fed FOMC meetings:

• October 24/25, 2006
• December 12, 2006
• January 30/31, 2007
• March 20/21, 2007
• May 9, 2007
• June 27/28, 2007
• August 7, 2007
• September 18, 2007
• October 30/31, 2007
• December 11, 2007

-- Jack Krupansky