January Fed Meeting: Could We See another 75bp Rate Cut?

January 23, 2008

Is the Federal Reserve done? No. Will the Fed cut interest rates again on January 30th? Yes.

The story of the day is the fact that the US dollar fell to a 2.5 year low against the Japanese Yen and now that 105.00 has been touched, it is only a matter of time that it is breached.

Yesterday afternoon, the market was going crazy about the possibility of a 50bp followup rate cut on Jan 30th. Today, Fed fund futures are now pricing in a greater chance of another 75bp rate cut next week. Two back to back three quarter of a point drop would finally put the Fed ahead of the curve. The US economy needs it and we expect Ben Bernanke to deliver it. The price action in the markets indicates that traders are not satisfied with yesterday’s emergency rate cut. The Fed gave traders a test of what they could get and now they want more.

The following table illustrates how Fed Fund Rate Cut Expectations have shifted over the past few days.

Posted in Fed Emergency Cut, Fed Rate Cut, Fed Rate Cut Expectations, Federal Reserve, US Dollar, recession