YET another big rate cut: until recently that is exactly what many investors were expecting of the Federal Reserve's next policymaking get-together on April 29th and 30th. After all, bold rate cuts have become the Fed's hallmark. Between late-January and mid-March, America's central bank slashed short-term interest rates by two percentage points, to 2.25%, as it staunchly sought to cushion America's economy from the fallout of the credit crunch. Earlier this month, Fed funds futures indicated that financial markets expected the trend to continue, with at least a quarter-point cut on April 30th and a 50% chance of a half-point move.

No longer. Expectations have shrivelled in recent days, and the price of Fed funds futures now imply that investors see no chance of a half-point cut and an almost 20% likelihood of no cut at all. The reassessment makes sense. Depending on how you measure inflation, real short-term interest rates are already around zero or negative. And although America's economy is still heading downhill, the Fed's calculus about the benefits and risks of even cheaper money is shifting fast.

First, the odds of financial disaster have receded. Although important parts of the credit plumbing, notably the interbank market, are still surprisingly gummed up (see article), spreads on riskier bonds have narrowed. Steep rate cuts were partly meant as a (blunt) tool to forestall financial calamity. More of that insurance now seems unnecessary. Second, America's economy is not deteriorating any faster than the central bankers had expected. According to the minutes of the Fed's last meeting, its staff and several governors believed output would contract in the first half of 2008. The latest statistics do not show an economy in freefall. Industrial production rebounded in March after plunging in February. The pace of existing home sales fell slightly in March, but was stable over the first quarter as a whole.

Thanks to the rate cuts so far, there is a lot of monetary stimulus in the pipeline. And the economy is about to get a fiscal boost, as millions of Americans receive their tax-rebate cheques in the next few weeks. Economists disagree on how much of this money cash-strapped and debt-laden consumers will spend, but it will doubtless provide some benefit.

If the case for more rate cuts is weakening, the risks of cutting further are becoming ever clearer. Commodity prices continue to soar while the dollar plumbs new depths. The oil price hit a new record of almost $120 a barrel on April 22nd. The same day the dollar fell to a new low of $1.60 against the euro after members of the European Central Bank's rate-setting council expressed concern that inflation in the euro zone might not fall sufficiently fast from its 16-year high of 3.6%.

America's central bankers, too, are becoming more worried about inflation, Two members of the Fed's rate-cutting committee, Richard Fisher of the Dallas Fed and Charles Plosser of the Philadelphia Fed, who voted against a big rate cut at the last meeting on March 18th, were already worrying that inflationary expectations could become “unhinged”. Lately even some doves, such as Janet Yellen of the San Francisco Fed, have sounded concerned.

For the moment, America's price picture is murky. “Core” measures of inflation—which exclude food and fuel and which Fed officials tend to prefer—have improved of late, largely because rents are no longer rising as fast as before. And some market measures of inflationary expectations, such as the gap between inflation-indexed Treasury bonds and others, have fallen in recent weeks.

But headline inflation remains high—at 4% in the year to March. And price pressures are building at the wholesale level. Producer prices rose at an annual rate of 9% in the first quarter of the year, while prices of intermediate goods were up by 15%. If the dollar weakens further and commodity prices continue to soar, that pressure will rise. The central bankers' balance of risks is clearly shifting.