
Around wall street and main street right now, all eyes are on the Federal Reserve. Investors are widely hoping for a cut in interest rates to help the economy. Mortgage lenders are hoping for a rate cut to help their hurting business. Many individuals would certainly welcome a rate cut as well since it would make
borrowing money cheaper.
The Federal Funds rate currently sits at 4.5%, historically a fairly low, but not terribly low percentage. Federal funds futures trading at the CBOT show that investors are split on whether the Fed will move to cut interest rates this Tuesday by 25 basis points or 50 basis points. The fairly strong jobs number seems to have raised the chances that the Fed will just move by 50 basis points, but there is much uncertainty surrounding the decision.
Some economists believe that the Fed may move to lower the federal funds rate by 25 basis points, and then lower the discount rate by 50 basis points. The discount rate is what banks pay to borrow directly from the Fed in times of crisis. In the past most observers have written off the importance of the discount rate since the discount window is rarely needed, but mortgage crisis of late has given it an increased importance.
So will the Fed move by 25 basis points or 50 basis points? My guess is that the Fed will cut the federal funds rate by 25 basis points this week. They are likely to indicate that they are open to further rate cuts if economic data deems it to be necessary. The economy has still shown some strength in recent numbers, so I believe they will hesitate to move by more than 25 basis points.
Whatever the Fed decides there are sure to be some happy with the decision and some who are very unhappy with the decision. I just hope that history is kind to the course that the Fed is currently taking to try to prevent an economic recession.






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