The Federal Open Market Committee provided the biggest surprise last week by cutting the Fed Funds rate 50 basis points, instead of the expected 25 basis points. It was a unanimous decision related to concerns about the economy's growth. Odds are currently high that the Fed will cut another 25 basis points at the end of October.
However, Bear Stearns economists think it is unlikely that the Fed will cut again this year as they anticipate moderate growth in the economy. The economists also expect the Fed will be forced to reverse the cut in 2008 based on increasing inflation pressures. Deutsche Bank Securities analysts, on the other hand, expect an "insurance" ease of 25 basis points at the October meeting as they anticipate that inflation pressures will continue to moderate in the near term. They also believe the Fed would take rates lower in the event that growth slows substantially below 2% or if the unemployment rate creeps up to 5%.