Filed under: Forecasts, Economic data, Federal Reserve
The Federal Reserve will almost certainly announce another rate cut on Tuesday. The only open question is how much it will be. According to MarketWatch, “After the Bear Stearns news, market bets that the central bank will cut interest rates by 75 basis points next Tuesday jumped, pricing in a 100% chance of such a move, compared with 88% previously.”
If the Fed cuts less than .75, the markets are likely to sell-off quickly and brutally.
But, there are several reasons that the rate cut may disappoint investors. First, some Fed governors have said that inflation remains a worry. Wheat prices have tripled in ten months. The cost of food and other agricultural commodities are likely to rise. Metal commodity prices are moving up, making component costs for businesses like the car industry sky-rocket. Oil is above $100 a barrel, and that’s making its way into the gas and diesel markets.
The Fed may also decide that its best way to help the economy is continue to lend money directly to banks. The size of the current facility is $200 million, but that could go up.
The cut may only be half a percent. That may be the right decision, but the market will almost certainly not see it that way.
Douglas A. McIntyre is an editor at 247wallst.com.
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