What will Fed do?
Everyone is expecting the Federal Open Markets Committee (FOMC) to come in later today with a significant cut in the Fed Funds rate following its March meeting. Estimates in the general business media range from 50 basis points to 100 basis points, a full 1% pushing the rate from 3% to 2%. That would leave the Fed with very few bullets and continue to ignore disturbing inflation data.
Perhaps the best gauge is the market and based on the April 2008 Federal Funds futures contract (see below chart) traded at the Chicago Board of Trade, the market is expecting a full point.
One trader on the floor expects equity index markets to react positively to even a 75 basis point cut but if the Fed comes in with anything lower, our trader says, “It will get ugly to the downside.”
