Investors Focused on Size of Fed Rate Cut, Outlook
The Federal reserve is widely expected to cut interest rates Tuesday at its FOMC policy meeting, despite having set the stage for keeping its fed funds target steady after dropping the rate at its previous meeting on Oct. 31 (full story). "They pretty much tried to draw a line in the sand by going to a balanced-risks statement at the last meeting, and now the world's changed," economist Keith Hembre, who used to work at the Fed, said.
Late last month, Fed Vice Chairman Donald Kohn, and subsequently Chairman Ben Bernanke, surprised investors when they remarked that economic turbulence over recent weeks has largely undone any previous improvements in market function. "Should the elevated turbulence persist, it would increase the possibility of further tightening in financial conditions for households and businesses," Kohn said. The statement, which was followed by almost identical remarks from Bernanke, came in stark contrast to those of other Fed officials, who had until then indicated they were generally satisfied with present interest-rate levels in view of the present economic outlook (full story I, II).
A full 115 out of 124 economists surveyed by Bloomberg now anticipate a 0.25% cut to 4.25%. Seven foresee a half-point cut, and two think the Fed will keep rates steady. Traders were more bold. A 0.25% cut is fully discounted according to futures contracts on the CBOT, while the odds of a half-point reduction are 28%.
Also in focus will be any adjustment to the Fed's Oct. 31 outlook that, "after this action, the upside risks to inflation roughly balance the downside risks to growth." Last week, the central banks of England and Canada dropped lending rates, highlighting concerns about financial market turmoil (full story). "Inflation risks are present, but it is very hard to argue they are on par with growth risks," said economist Brian Sack. "We'll see a more flexible message, more attuned to the downside growth risks."
Additional Reading: Will a Fed Rate Cut Really Help? • Fed Can't Engineer Business Cycles Away
Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.
Related Articles
|
Top Rated Comment Streams:
-
1.Hedged In662
- 2.
-
3.Smarty_Pants417
-
4.axelrod608312
-
5.cos1000277
- Free E-Newsletters
- About Seeking Alpha
- About Us
- Contact Us
- What's New
- Readers Feedback
- Advertise With Us
- Contributors
- Contribute an Article
- Feature Your Book
- Our Contributors
- Anonymous Contributions
- Dispute an Article?
- Legal
- Terms of Use
- Privacy
- Copyright
This article has 1 comment:
-
unimpressedpragmatist
-
74 Comments
My Website
Dec 12 12:37 PMHere is a little primer for all you lamebrains who, foolishly, believe that the market is an honest business. The stock market is at the mercy of very, very big money people who can, at their whim and for their personal profit, manipulate it on a moments notice. Those of us who understand that make money. Those that don’t, become sub-prime borrowers. If you believe this is a rant by a know-nothing, consult Jim Cramer on the subject of market manipulation. He is a real expert on the subject.
For members of the media, keep writing your useless and ignorant treatises for the confusion of the ignorant. You and the weatherman have something in common: you are always wrong but many believe in your prattle so you can continue to draw salaries under false pretenses.