Due to widespread anticipation that the Fed will cut key interest rates for maybe the last time at its FOMC meeting this week, the U.S. dollar is trying to rally a bit. Wall Street is now expecting the Fed to cut the Fed Funds rate by 0.25%, from 2.25% to 2%, despite the fact that the 1-month and 3-month Treasury bills are yielding only 0.80% and 1.34%, respectively. Frankly, since this is the Fed's last chance to avoid an official recession (two negative quarters of GDP), I would throw caution to the wind, cut the Fed Funds rate 0.5% to 1.75%, boldly declare that this is likely the last rate cut and then tell businesses and consumers to start spending money! The U.S. dollar might firm up if they would just declare that they are likely finished cutting rates for this cycle.

Increasingly, there are now rumblings that the Fed may not cut rates at all, despite falling market rates, due to fears that the Fed does not want to weaken the U.S. dollar further. At the last FOMC meeting on March 18, Dallas Fed President Richard Fisher and Philadelphia Fed President Charles Plosser argued that the Fed was moving too fast in cutting rates and voted against the subsequent 0.75% cut in the Fed Funds Rate. In fact, there have been dissenting votes at every FOMC meeting since they voted the first cut last September. Rich Yamarone, the director of economic research at Argus Research, said, "There is no reason why the Fed should be cutting rates now" and added, "the Fed is on dangerously thin ice." Yamarone also said that the Fed is "basically telling everyone 'we are abandoning any defense of the dollar.'"

As a result of these conflicting views, this week's FOMC meeting is filled with uncertainty. The Fed always has to walk a fine line, so we will carefully watch their statement after this week's FOMC meeting. Their statement may even have a bigger impact than their actual interest rate decision, which will most likely come with some dissenting votes, no matter what the Fed does.