by Bill McBride on 1/18/2008 08:08:00 PM
Friday, January 18, 2008
According to the Cleveland Fed, the market expects a 75 bps cut in the Fed Funds rate on January 31st, with the odds of a 100bps rate cut rising rapidly.
Click on graph for larger image.
Source: Cleveland Fed, Fed Funds Rate Predictions
It is no longer a tossup; market expectations are for a rate cut to 3.570% or almost 75bps.
Professor Tim Duy argues: Odds Still Favor a 50bp Cut
I think odds still favor 50bp – it would be more consistent with the Fed’s medium term objectives, and help maintain policy flexibility over the first half of the year. Moreover, this cut will do nothing to support the current environment, and the Fed needs to be looking at what it means for 2009. The case for 75bp relies largely on meeting market expectations, expectations that may be driven by an excessive level of fear.If 75 bps is based on "an excessive level of fear", I wonder what Tim thinks of 100bps?