Thomask, I can't imagine that they would go for more than 25bp either, but I also said that in September...

From an analyst's standpoint, the uncertainty surrounding the event is very exciting, regardless. A surprising decision will only give us more to write/talk about in coming days

Are you planning on trading this event or standing on the sidelines to watch the carnage?

You're absolutely right, and this is why I think the Fed may move in to cut just the discount rate while leaving the federal funds rate unchanged. However, some FOMC members have focused more on the core CPI measure since it tends to be less volatile. However, and I've seen this quoted elsewhere, how effective can monetary policy be on price pressures when you're looking at inflation excluding inflation (food, energy)? The central bank is certainly in a rock and a hard place, but you can't say they didn't really put themselves there.

I'm watching the carnage. I can't wait to see this. After that,I'll just let the market decide what it wants to do.

About the predicament that Bernanke is in, it's tough, because in his speech to the ec of ny he was saying that his job is not to bail out the consumer from bad choices,(arms), and his focus is as it has always been, inflation over growth. This is right after a 50bp cut. Then he referred to his liquidity infusion by open market actions and the discount window for the credit market. I do think along your lines thogh, that he's got to cut 25 now just to keep the markets steady.

We just published our most recent "Watch what the Fed Watches" report.

http://www.dailyfx.com/story/special...844409361.html

Signs are mixed on the broader US economy, and we see little scope for a large-scale improvement in lending and credit conditions on continued global risk aversion. Will a 25bp interest rate cut really be enough to assuage market fears and bolster growth?

Here is a link to the WSJ Real Time Economics Blog...Sudeep Reddy has an interesting post on the Fed's track record regarding market expectations: http://blogs.wsj.com/economics/2007/..._economicsblog

Inflation pressures are very high. The deteriorating dollar causes imports to become expensive. The imported goods from china and other low cost countries are becoming more expensive. The same imports that used to prop up the US CPI statistics, offsetting rising oil and domestic manufacturing costs.

Some say the fed needs to save the stock market... Why?? The stock markets are trading at close to all time highs worldwide, I can't see any need to save wall street at this point in time. The only reason I can see for a cut is for the fed to bail out their friends in banking, who are loosing billions at the moment due to the lack of trust in the assets backing their securities.

If the fed wants to be recognized as an "inflation fighter" cutting now would be a really bad move. It would tell the markets they are accepting inflation in order to prop up banks while they kill the dollar and the purchasing power of the ordinary citizens.

Wow,,,very interesting indeed. We'll see if the Fed heeds the market's beckoning call.


-thomask

jonasf, not sure if you saw my response from a few posts back, but I'm just wondering, do you think the Fed will leave rates unchanged? Are you trading this event?

9-1 vote for 25bp cut to FF and discount rate...pretty bearish news for equities, bullish for the $

*more analysis to follow

The FOMC policy statement suggests that rates will stay pat at 4.50% through year-end, especially as Hoenig voted to keep rates unchanged. The central bank noted that upside inflation risks are roughly balanced with the downside risks to growth. This sort of analysis would indicate that any further policy action will be data dependent. However, this is what really assures me that we won't see any additional cuts:

"Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and promote moderate growth over time."

Basically, the Fed has taken their pre-emptive measures for a Q4 slowdown, and now they'll wait and see what happens.

Here's a link to the full statement: http://www.federalreserve.gov/newsev.../20071031a.htm

OK, the fed cut, but there does'nt seem to be a lot of carnage yet. I wonder if Fri. NFP will hold some surprizes, other than more all time highs against the USD.
I've been anxiously awaiting the carry trades to unwind drastically as the weekly strategies are predicting.

If we don't see the equity markets respond within the next few days to the FOMC indications that no additional rate cuts are in store, you can practically count on 'irrational exuberance' continuing and taking the Dow and FX carry trades higher.

Don't forget about ISM tomorrow. Terri, any thoughts?

-thomask

Countries with their currencies pegged to the dollar will jump off the runaway train the fed is driving. Commodities will increasingly start to trade in other currencies, some OPEC countries may even switch to trading their black gold in Euros..

Confidence in the dollar is at risk, its standing as a world currency is seriously threatened. Imagine when the Chinese and others are starting to dump their dollars due to loss of confidence in the currency.

For years inflation was exported to low cost countries making prices fall in the US and other western high cost countries. With this cut importing goods will become very expensive.. The fed is shooting themselves in the foot, maybe next time they will shoot themselves in the head?

So far I can only see banks taking a hit due to what they call "financial engineering" where they played with inventing securities that could score an AAA rating even though the underlying assets were not sound. Those securities were passed off to other banks in order to free them from exposure to risk. Unfortunately in a different department in those same banks they bought the same junk engineered by other banks, so they're standing there with long noses.

They are being bailed out by the fed and it's again the little guy(home owners, investors etc) that has to take the fall when it comes to the practises of big banks.

Given the really weak Chicago PMI reading we saw this morning, I think there's potential for ISM Mnfctg to disappoint. There are a couple of things to watch, though: 1) Can it hold above 50? 2) Prices paid component 3) Employment component ahead of NFPs (though the ISM non-mnfctg employment component typically jives a bit better with NFP results).

Like I said, I think it will likely disappoint and the employment component may falter as well, however, a strong prices paid index could keep the headline reading above 50. Net result = $ bullish. However, I think EURUSD will consolidate near these records highs over the next two days, so any $ reaction to the data may be brief.