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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Reader Comments (Page 1 of 1)
3-17-2008 @ 11:11AM
Brent said...
What do you mean...."likely to rise"?? Have you been shopping lately...have you bought a gallon of gas?? Someone's head is in the sand or another dark spot. The government, beginning with the congress (in lower case because that's exactly what these do-nothings are) and ending with every government agency, is a joke! Hope we've taken the concept of "emergency preparedness" to heart because we're going to need it.
3-17-2008 @ 11:24AM
Christina said...
While the Fed cuts the interest rates, it's also cutting the throats of those on fixed incomes (retireees and others) who relying heavily on safe investments (savings, CD's, etc.). If we as a nation do not take action to control cost on the basics--gas, fuel, homes--we are going to spiral into an abyss. Easy access to credit is not a cure; it is an addiction! I am so tired of too little, too late all for show. Why don't we have the best and the brightest coming up with plans? And, when we do, why don't those at the top listen?!?
3-17-2008 @ 7:31PM
Robin said...
What about the loan sharking credit card companies with interest rates of 25% and more?If you're one day late on a payment your rate can rise to over 29%. We're using our credit cards right now not for fur coats and diamond rings but for groceries and to survive the economy's turn for the worst. Our income has dropped drastically but if credit cards companies charge us 25% interest we have no choice but to default and our credit score was over 760 when this all started, we are not a bad credit risk! Feds, put a cap on the high rates the credit card companies are charging before it's too late!