Hey Ben! Do that to me one more time...

WSJ: The Federal Reserve is likely to cut its short-term interest rate by a quarter of a percentage point next week -- but then may be ready for a breather. The Fed, meeting Tuesday and Wednesday, is likely to make what would be its seventh cut in eight months. The reason: Some officials see a case for more insurance against a deeper recession. But others are concerned a cut could contribute to inflationary pressure with little benefit for growth. That means the option of standing pat will likely also be on the table. If it does cut rates, the Fed could signal in the statement accompanying the decision an inclination to pause and assess the impact of its cuts, which have lowered the federal-funds rate to 2.25% from 5.25% since last year. Officials say the case for lowering rates further rests primarily on the value of additional insurance against a worse-than-anticipated economic scenario.The shifting sentiment doesn't mean the Fed thinks the worst is past for the economy. It is almost certain to signal continued concern about economic growth and a willingness to cut rates further if the outlook worsens.

Still, officials would like to see whether their rate cuts, the Fed's other steps to lubricate credit markets and imminent tax rebates help produce a second-half recovery. Moreover, while they think inflation is headed lower over the next year, they are sensitive to the risk that additional rate cuts could stoke inflationary psychology. Once embedded, such psychology can make a temporary rise in inflation permanent. A willingness to pause in rate cuts could help reassure investors the Fed takes the inflation risk seriously....

MyTake: I believe it will be a wise move by the Fed if they lower interest once more this 30 April and then wait to see how the economic situation panned out before further cut, if necessary. The cuts since September 2007 needs time to filter into the economy. Although the economy's unconfirmed economic data is showing the US is seen to be going into a mild recession, the recent economic data shows some of the indicators have probably bottomed. Egs last week's workers filing initial claims for unemployment benefits which was surprisingly lower and the appetite by corporations in investing as evident from Durable Goods Order. These are some of the economic indicators that support the slowing and pausing of the interest rate cycle. Already, short-term U.S. interest rate futures imply about an 80 percent chance of the Fed cutting rates to 2 percent at its April 29-30 policy meeting, with about a 15 percent chance of no rate move. Just over a week ago, futures implied about a 50 percent chance that the Fed would cut by an aggressive 50 basis points. This expectation has strengthened the USD as the Euro:USD which has recently dropped from 1.602 has now gone up to the current level of 1.5607. Even today, the expected shift in interest rate policy has resulted the Japanese government bonds to suffer their biggest one-day drop in nearly five years. The good thing about this stance is that we will probably see firmer dollar in the horizon and will indirectly pushes oil prices and other commodities prices lower...hence food prices (assuming no external/supply demand shocks). The more stable and firmer dollar would also benefit exporting countries as exporters are more willing to export without losing money. In theory, the firmer and appreciating dollar will push the bonds lower and the stock markets higher.

* Also on the subject of interest rate and currencies, according to The Standard HK, the yuan deposit account in HK has increased by 90% compared to last year. This amount of 47.8B yuan(HKD53.5b) is about 1.7% of HK deposits. The increase was attributable to weak HK stock market, declining HKD savings rate(almost zero), weak HKD which is peg to USD and anticipation of yuan appreciation(expects 6-8% this year).