Fed Odds for cut fall to 78%. Over what, I have no idea. Between Friday and now, nothing really happened.

FFF markets have just been incredibly volatile as of late. Check my recent post under the EUR/USD forum for more on the topic.

I think that we're just seeing that markets are a bit less "panicked" than they were on Friday, but that the odds are still very much in favor of a cut. Whether I think a rate cut is the most prudent course of action is a whole other story.

New report just recently published.

http://www.dailyfx.com/story/tophead...248941403.html

Things are really shaping up for, at the very least, a 25bp cut on October 31. Though economic data hasn't necessarily worsened (other than housing, obviously), credit conditions have tightened considerably and the bank may feel pressured to restore confidence in domestic lending markets.

It will be interesting to see if the Fed can boost confidence in that arena, as it appears that there just isn't demand for credit especially in regards to consumers. I mean, really, how much more indebted can households reasonably become while remaining solvent?

I'm "trending" to agree with you, Terri. I've changed my opinion that the Fed will lower rates, but I think it's too late. I haven't been hearing too much good news for any markets, except for Euro which seems to be maintaining. I just read an article that said one in 253 homes was foreclosing in California, the third highest state of foreclosures. I don't know what the "average" foreclosure rate is without economic turbulance, but to me, that seems a little steep. I don't know what the stats would be for homeowners on the verge of foreclosure, or on severe spending restrictions, but I bet it would be over one in 50. So how bad will this recession be?

That rate does sound like a lot, and I don't have exact statistics on hand, but I've read on various occasions that foreclosures are climbing significantly. While it may sound great that those ultra-low interest rates we saw a few years ago allowed more people to be able to buy homes, the truth is, a lot of these buyers should never have been able to in the first place. If you can't afford something and you have to borrow an exorbitant amount of money to get your hands it, you shouldn't buy it. By no means am I blaming subprime borrowers, as there are so many different levels of "fault" in this situation, but this never should have happened in the first place. It's quite unfortunate.

1 in 50 on verge of foreclosure would be recessionary type of numbers. Let's hope that doesn't come to pass.

the market is accespt .25 cut...and trader wait signat for furt cut

The consumer confidence numbers released this morning were pretty negative - the Conference Board index dropped to a two year low. I really think it's just a matter of time before we start to see spending figures take a hit. Average national credit card rates have come down very slightly, we'll see if it's enough the keep the heavily indebted consumer spending just a bit longer before they completely drown in bills.

Oil is still above $90 a barrel and stock markets near all time highs.... It's hard to imagine how the fed will justify a rate cut and still come out as an "inflation fighter", the only reason I can think of for them to cut is to save their friends in banking.

Inflation pressures are tremendous at the moment with a falling dollar making all imports more expensive. Even the cheap goods from china and other low cost countries that used to prop up CPI statistics will now rise in price together with raw materials...

/Jonas F

Terri,
Great point about the Fed using the discount rate to curb trouble in the credit market. That is precisely what Bernanke said they have been doing when he was speaking to the Economic Club of NY. I can't imagine he would drop rates more that 25 points when they just dropped so aggressively last month.

-thomask

If the broad consensus is 25bp cut with some wait-and-see language in the communique what do you think the post news price action will be like? To me it still feels dollar negative under those circumstances. Only 100K + NFP could give greenback a lift

How can the Fed cut the Fed Funds rate with 3.9 Q3 advance GDP and ADP healthy payroll #??? PCE Core inflation guage is up.

The mkt pricing in 25bps almost assured; US$ just destroyed against any currency except the yen. to multi-year high's.

Housing is lousy we all know that but other parts of the economy are strong , wage growth reasonable ISM still showing > 50.

Lowering rates here just tells the oil and gold markets to keep running higher, it invites inflation and says sell the $ we have no faith.

If we don't get a cut today in FF , perhaps they will just lower the discount rate. Mishkin hinted that controlling that rate helps alleviate the real drag on the economy which is the tightening credit , CP markets w/o inviting inflation worries that lower consumer lend rates would bring.

If FF holds today the $ is gonna catch a bid like a tsunami hits the shore.
Equities would get crushed I see now as they "expect/demand" the cut.

Final thought is what is the stmt say after their decision. Good Luck out there as there are times to load up and times to scale back. I don't see now as a time to load up...

I for one am going to watch the play out risk/reward says stand aside and let the market tells us where it wants to go.


Euchre

Disclaimer Trading Currencies involves risk. Any opinion, research, analyses, prices, or other information is provided as general market commentary, and does not constitute investment advice.

The thing to keep in mind with GDP figures is just how backward looking they are...Q3 says nothing about Q4, and we all know how apt these GDP reports are to being revised anyways. Meanwhile, Chicago PMI started out Q4 on a very sour note, as the index fell below 50 and bodes extremely ill for ISM manufacturing on Thursday. If ISM manages to hold above 50, I doubt it'll be very much above it. My point is, there are signs that the economy is not healthy and that other sectors are experiencing a contagion effect from the housing collapse.

That said, I don't think the Fed's expansionary monetary policy will realistically do much to stall an oncoming recession and that the Fed's best strategy would be to simply to target the discount rate if they're going to cut anything. However, I think the reality of the situation is that Bernanke & Co. are looking to manage market sentiment, and as a result, need to follow through with a 25bp cut to the FF rate. Perhaps their way of trying to ween traders off of rate cuts will be to issue a more neutral policy statement.

Given the major risks associated with this rate decision, it is likely best to wait on the sidelines, as price action will be very very choppy.