It is the psychology that matters...

Futures markets are pricing another 25 basis point cut for the FOMC meeting scheduled for next week. There is a strong feeling that the Fed will likely take a pause after cutting rates for the 7th time in 8 months.
Although there has been a clear bias shift from worrying about inflation to worrying about the economy soon after the subprime induced troubles erupted last year, the surge and persistence of high commodities prices have created a sort of malaise as the slowing economy does not seem to be having its desired effect of acting as counter force. It should be noted at this point that the surge reflect structural changes in demand and supply which include the impact of the growing wealth of emerging economies, reallocation of food crops for energy purposes, ongoing climatic changes and other unanticipated supply disruptions.
All this is to say that although the downturn will add a cap to wage induced inflation as the labor market slackens, the risk of provoking higher inflation expectations considering the rise in commodity prices and the aggressive easing in monetary policy in recent months is substantial. The problem remains that once this perception takes hold in the minds of households and businesses, stopping it becomes difficult. For this very reason the Fed is likely to take a breather for a while after next week's anticipated cut to eliminate the perception that it is feeding inflation and to assess the impact of its recent actions.