Rate Cuts Expected This Week

Previously we had about a fifty fifty verdict as to whether or not the Federal Reserve will cut rates come this Wednesday, but it seems now more people are leaning towards a quarter rate cut.

The reasons for this change in thought are as we have gotten closer to the meetings on this Tuesday and Wednesday we have a better outlook as to how our economy is doing. As in Frederick Mishkin’s conference on Friday the general consensus among Federal Reserve officials is that they expect the economy to slow because of the mortgage credit crisis that we have been experiencing after the worries of default mortgages had spread. The economy has been held up so far because of the strong exporting business and the steady hiring and spending. The Gross domestic product is posted Wednesday morning and is estimated that economic expansion for the third quarter of this year is running at a 3% annual rate. However, the outlook for the final quarter of the year is for rapid deterioration caused by the lingering weakness of home sales and construction, softer consumer and business spending, and slower job growth.

No one expects more than a quarter of a percent rate cut announcement this Wednesday as inflation has started becoming a concern with large rate cuts. “The potential inflationary consequences of higher oil and other commodity prices, plus the further depreciation of the dollar in foreign exchange markets, argues for a more moderate policy response than last month,” UniCredit economist Roger Kubarych said in a Reuters interview.

To read more about Fed expected to cut rates to head off recession head on over to CNBC.