Thursday, October 25, 2007

Fed meeting next week

This is just a reminder that there is a Fed meeting scheduled for Oct 30-31st (the 31st will be the decision). You can read a schedule of all the meetings, plus the previous statements and minutes, here.

The consensus looks to be another 25bps to 50bps rate cut. The predictions market is pricing in a 25bps rate cut with about a 70% chance, a 50bps cut chance has about a 20% chance.

Remember that the Fed is worried about the recession in the housing market spilling over into other sections, causing an economy wide recession. In order to prevent this, the Fed is ordering the New York desk to purchase US government securities, which will increase the supply of money and push the Fed funds rate down. The fed fund rate, in turn, is supposed to influence other interest rates down and stimulate economic activity in the short run.