The Fed's Next Move

Expect at least one more 25 basis point rate cut. But all bets are off if consumer confidence dives again

The policy statement that accompanied the Fed's Jan. 31 rate cut offered no clear clues to its next move. Obviously the door is open for more aggressive rate cuts ahead, including an intemeeting move.

However, S&P MMS suspects the Fed is flying by the seat of its respective pants (just as much as we are), and the onus will be on upcoming data, especially consumer sentiment indicators.

The Fed's statement clearly laid out its thought process and chain of events, acknowledging that the new technologies may have accelerated the downside correction, and hence warranted the "rapid and forceful response" from the Fed. But, it's difficult to know if the front-loading has been successfuly completed.

Standard & Poor's MMS will stick with its forecast of a 25 basis point rate cuts at the upcoming March and May FOMC meetings unless data or events suggest differently. More aggressive action may be needed if there are signs that confidence remains on its precipitous slide.

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