|My thoughts on tomorrow's Fed meeting:|
Traders, markets and the economy face another meeting of the Federal Reserve this week. And, again the market and most economists are predicting another 1/2 point rate cut putting interest rates at 2%.
Yet again, I'll play the odd man out. Even though "they" say the Federal Reserve has been afraid to "disappoint" the markets, and the market is saying 1/2 point, I think a 1/4 point cut makes more sense. Frankly, I believe the same arguments apply as the last Federal Reserve meeting.
An extra 1/4 point does not add that much additional benefit, especially after having such a long series of cuts, yet it reduces the Federal Reserves future options. Already the Federal Reserve is pushing on a string waiting for previous rate cuts to work their magic. In the meantime what is needed is more fiscal stimulus. There has never been a more appropriate time to give the taxpayers a rebate, even if just $100 dollars, before Christmas would provide consumers and businesses a much needed financial and psychological boost.
The Federal Reserve is feeling unusually high pressure to revive growth, and many folks adding to the pressure seem to think we should see at least 1/2 point. Additionally, there is no inflation and energy prices are dropping, so inflation concerns as a reason to slow rate cuts will not be looked upon as a reasonable excuse.
But as the Fed may have overdone the rate increase two years ago, they may be in position having to sharply increase the rates when the economy turns back up, after all, interest rates are already below the rate of inflation. That effect on sentiment will be a larger blow than only 1/4 point cut.
So I'm hoping Chairman Greenspan, takes a conservative approach on interest rates, and promotes some Christmas shopping in the form of a tax rebate.
Expect to hear the results of the Feds deliberations Tuesday at 2.