Market Insider: Tuesday Look Ahead

The Fed is the big focus Tuesday, but Goldman Sachs earnings will help set the tone ahead of the open.

Traders are watching not only what the Fed will decide to do about rates, but what it will say about the economy and the credit crises at the end of its two-day meeting at 2:15 p.m. Economists expect the Fed to trim the current 1 percent target Fed Funds rate to a half a percent.

For Investors

"I think they'll acknowledge that the recession is intensifying, and that inflation is no longer an issue. I think they might even hint the opposite is a growing concern. Deflation. they won't use that word, but they might hint at it. In the policy statement, they might have a line on what the next stage of quantitative easing might mean," said Mark Zandi, chief economist at Moody's

Zandi said he hopes the Fed cuts by 3/4 of a point instead of a half. "That way they move the discussion away from rates to what quantitative easing means. We're officially at zero anyway," he said.

Zandi said he expects the Fed to buy a range of assets, like mortgage securities and corporate debt, in an effort to unlock the credit freeze and drive down rates. "Effectively, they can do what the TARP (troubled asset relief program) was originally intended to do," he said.

Economic reports Tuesday include the consumer price index, expected to show a 1.3 percent decline; housing starts and building permits, all at 8:30 a.m.

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Goldman Sachs is expected to report a $3.50 per share loss when it reports before the bell. Other companies reporting earnings include Best Buy , before the bell, and Adobe Systems and Hovnanian Enterprises , which report after the market close.

In other corporate news, General Electric holds its annual outlook meeting in New York.

The Dow Monday fell 65 to 8564, while the S&P 500 fell 11, or 1.27 percent to 868.57.

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