Many in the market are expecting that the Federal Reserve will make another rate cut as a reflection of the deteriorating state of the US economy. In a desperate attempt to save an economy in crisis, it is expected that this cut could be as large as 50 to 200 basis points. Although, it is more likely it will be around the 50 - 75 basis points mark.
There is a general feeling with some market watchers that the Fed may take an aggressive approach and shock the economy into action. As President Bush declared, “we’re in challenging times”.
Mark Zandi, a chief economist at Moody’s Economy.com also states that: “The Fed is on high alert — something you don’t see but once every quarter century; maybe, in this case since the Great Depression. This is a very unusual period.”
At the moment, the Fed is fighting multiple battles at once, a housing collapse, a severe credit crunch and a wall street turmoil which feeds on each other creating a vicious circle that may be hard for the Fed to break.
This may not be the end of it - if it does help the economy, it may only be temporary and a rate cut may not be enough to get the economy back on track.
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