Almost no one expects the Federal Reserve to announce an interest-rate cut this afternoon, when the FOMC is scheduled to make a public announcement on the price of money and the economy.
The sentiment is quantified in Fed funds futures. As we write this morning, the April contract is priced for the status quo of 5.25%. By the end of the year, however, the market expects that rates will be lower, or so the futures contracts predict. But that doesn’t help in the here and now.
“What is likely is no change at all,” said Jim Russell, director of core equity strategy for Fifth-Third Asset Management in Cincinnati, in the Mercury News Wire. “We might get a little commentary on the housing market nationwide … but we don’t think there’s much action in the cards.”
Nonetheless, some observers are looking for calming words from the Fed in the wake of jitters over the subprime mortgage market. “There’s been uncertainty in the market about where the U.S. economy is heading,” Oscar Gonzalez, economist at John Hancock Financial Services,
told AP via The Baltimore Sun. “I think the Fed’s message will be one of stability.”
The question is: What constitutes enlightened thinking on stability these days when it comes to monetary policy. Martin Crutsinger, economics writer for AP, puts his finger on the quandary facing the Fed in his column today via The Houston Chronicle:

…the economy has turned weaker with business investment, which had been expected to take up the slack from a weakening home market, faltering. And consumer spending is weaker as well.
That is why some economists have been pushing the possibility of a recession higher this year. Greenspan put the odds at one in three.
Normally, the central bank would respond to spreading economic weakness by cutting interest rates. However, two reports on inflation last week showed that price pressures remain a problem with both wholesale and retail prices rising more rapidly in February.

Ed Yardeni, CIO of Yardeni Research, weighs in today on the economic outlook in an email to clients. “Real GDP growth is likely to remain subpar during the first two quarters of 2007,” he wrote. “The culprit is residential investment, which chopped a full percentage point off of real GDP growth during the last two quarters of 2006, and is likely to do the same to Q1 and Q2 of this year.”
If rates are held steady, and the slowdown/inflation threat remains, the task du jour later today will be parsing the FOMC statement for crumbs of insight about what’s coming in monetary policy. Beyond that, tomorrow’s initial jobless claims update promises to attract attention, as will Friday’s report on existing home sales for February.
We’re still data dependent, but for the moment there’s precious little new data to dissect.