The fed-funds futures market thinks it, the press thinks it, and the vast majority of primary dealers think it. When the Federal Open Market Committee emerges from its latest meeting tomorrow afternoon, a 25-basis-point rate cut down to 4.5% is almost a foregone conclusion ... or is it?
In the Wall Street Journal's "MarketBeat" blog, David Gaffen points out that policymakers themselves are not convinced of a rate hike. Gaffen quotes fellow Journal scribe Greg Ip, who notes "the decision is between the quarter-point reduction and no cut at all" among policy makers. For those hoping for a second cut of 50 basis points, it's quite a long shot and "unlikely to get serious consideration from Fed officials."
While this dose of realism may be true, it won't be enough to curb expectations a mere 24 hours before the rate announcement. Most still expect another rate cut, and if the Fed doesn't deliver, their inaction will almost certainly have an immediate and negative reaction on the market, which could continue through to the end of the week.
Overseas markets are already showing signs of skittishness ahead of this important report, with European indices breaking a 4-day winning streak.
Discuss this article:
"The Fed and its reckless money-printing have engendered run away inflation, which is uniquely a monetary phenomenon. It was entirely their choice to create all of the inflation that they are purportly worried about, and have covered it up by means of hedonic adjustments, which has informed us that despite prices increasing due to the decline in the value of the dollar, inflation is magically around 2%. Now they'll probably cut because they don't want to what is economically correct, but what the financial services industry wants. The end result: MORE DOLLAR PRINTING AND MORE INFLATION! I think we can see the irony... I guess they can always reissue the currency when this one becomes totally worthless. This aimless Fed, starting from Greenscam and continuing with helicopter Ben, is the reason for all our economic troubles" Respond
"This Fed is obsessed with 'inflation' which has disappointed them and the lack of inflation makes them overlook the other important mandate the Congress gave them: Employment. Now they are in delimma: If they cut too much, it sends message to the the market that economy is in bad shape and if they cut too little, the market is not happy either. At this juncute, all schools of analysis, fundamental, or technical or contrarian, don't work any more. " Respond
"100% of analysts and economists believe that the Fed will cut by at least 50 basis point by years end and most believe the cut will be 75 basis points. Therefore, while the exact timing may be up in the air, the cut is baked into the cake, and the market's daily gyrations lately are relatively insignificant in the big scheme of things. We are definitely not in an obvious trend so that makes it hard to conduct analysis. Count me as one who believes that we need a good 20% correction here and dampen the overspeculation which has for too long gripped all our asset markets. Aggressive easing weakens our currency in future years, which is why Gerald Ford appropriately referred to inflation as a kind of unseen thief. Inflation rewards the profligate and punishes the thrifty. That's not good for our economy or our country." Respond
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