With Fed Fund futures showing a 100% certainty of a cut Tuesday, the question becomes: How low will the Fed go?
CNBC’s Steve Liesman called it unlikely for a Fed cut to be any more than 25 basis points. The fact is, he said, it doesn’t even matter as much as the wording of the statement matters. If that statement indicates the central bank might consider cutting rates further and an understanding that the risk is definitively to the weak side of the economy, that’s when a rally can be fully expected, Liesman said.
While unlikely, Liesman said, the Fed ought to cut by 50 basis points, in addition to whatever they do for the discount window. Bernanke has been behind the curve on the credit crisis and if it doesn’t take some drastic action, Liesman thinks the bank is in serious danger of having a communications problem with markets. The Fed’s language has changed – and then changed back – several times since the real mess started in August. And credit markets have deteriorated even further since the last time it met.
Jeff Macke agreed with Liesman's original thesis that the “guidance” part of the statement will be the most telling when the decision comes in. If the Fed says growth is slowing, investors can expect more rate cuts to come in future meetings, Macke said.
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