Will the Fed Cut Interest Rates on Tuesday?
With the bankruptcy filing by Lehman Brothers will the Federal Reserve’s Federal Open Market Committee decide to cut interest rates by a quarter of a percent? Here are some of the recent events that will probably be discussed at the meeting,
- Wall Street is in crisis mode. On Sunday, investment bank Lehman Brothers Holdings Inc. filed for bankruptcy, triggering fears of cascading losses across a range of financial institutions.
- Lehman’s demise came a week after the government crafted a rescue plan for U.S. mortgage finance companies Fannie Mae and Freddie Mac, which had been brought to their knees by the housing market collapse.
- Late on Sunday, the Fed announced a slate of measures to enhance its liquidity provisions and keep the financial system afloat as the global credit crunch, now in its second year, seems to be getting worse, not better.
- U.S. stock markets were hit hard on Monday. The Dow Jones industrial average .DJI tumbled more than 2 percent.
Also, the not so recent increase in the unemployment rate. However, countering this was the stronger than expected growth for the last quarter, revised to 3.3%. But was that due solely to the tax rebate checks? If so, then growth could slow again. Also, there is the reduction in oil prices. This can have a downward effect on inflation thus reducing the need/pressure on the Fed to keep interest rates steady or even take them higher.
In any event, my guess is that the probability of a rate cut just went up.