After all the action in the markets over the past few days it is time for the most important event of them all, the Federal Reserve monetary policy decision. Since the last time the Federal Reserve cut interest rates the economic picture has become much more clear, and it isn't a pretty sight. The housing market has gotten even worse. The employment picture has worsened substantially. Consumer confidence levels are dropping at an alarming rate. Just today we had the fifth largest investment bank in the world bought out for $2 per share after running out of liquidity to meet its business needs. It seems as though everything that could have gotten worse in the last month or two has done just that.
So now it is time to see what kind of action the Federal Reserve wants to take. The Fed has already moved drastically to lower interest rates to a current level of 3%. Given the current state of the economy and the stock market, many strategists are predicting and hoping for at least 75 basis points, and some are even thinking that 100 basis points is absolutely necessary. The fact is that none of the Fed rate cuts up until this time have shown any benefits yet and the economy is on the tipping point. The stock market seems like its walking on egg shells, ready to plunge at any moment.
Everything points to a large rate cut, and a large rate cut should be what we get tomorrow. The market is at such a point that anything less than 75 basis points will likely trigger a massive selloff, and even 75 may trigger a knee jerk selloff from a lot of traders feeling like if the Fed doesn't move 100 basis points they are behind the curve.
The economic stakes could not possibly be higher right now. All economic indicators are rolling over and pointing to a recession or even worse and the Federal Reserve, despite inflation fears, must act quickly and forcefully. Let us hope that they do just that.
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