FOMC Fed Day 18 March 2008

The next FOMC interest rate announcement will be on the 18 March 2008.

More details and charts about Fed Days

What will influence the size of the rate cut tomorrow and the wording of the accompanying statement?

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...rumors that tomorrow's FOMC could now sanction a 100 basis point cut in the core Fed funds rate to 2.00 pct, rather than the up to 75 basis point reduction widely expected before the Bear Stearns collapse.

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...everything will be overshadowed by the FOMC interest rate decision in the afternoon.

Markets are fully priced in for a 100 basis point cut to the U.S. Fed fund rate on Tuesday. Many economists have recently changed their forecasts and are in agreement with market expectations.

In a note to clients, Goldman Sachs said they are changing their forecast to a 100 basis point cut. “In the current fragile financial environment, interest-rate policy has taken a back seat to the objective of preventing systemic risks to financial markets. However interest-rate policy still plays an important subsidiary role in re-establishing orderly market conditions and cushioning the economic downturn. Hence, we now expect the FOMC to cut its federal funds rate by 100bp to 2% on Tuesday,” they wrote.

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Fed fund futures have fully priced in a 100 basis point rate cut and are implying a 14% chance of a 125 bps cut.

Since August, the Fed has lowered rates from 5.25% to the current 3.00% level. During the rate cutting cycle, the Fed has frequently moved in tandem with market expectations and Kevin Flanagan, a fixed income strategist at Morgan Stanley, expects the same on Tuesday.

"A 100 basis point cut seems to be baked into the cake. The sentiment is that the Fed seems to be following the market expectations," Flanagan said. "The Fed does not want to disrupt the markets."

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In his congressional testimony, Fed president Mr. Bernanke emphasized downside risks to growth and promised that the FOMC would act in a timely manner to address those risks. Given that the stress on financial markets is intensifying due to the latest liquidity and solvency problems, and that private payrolls have now fallen for three consecutive months, the FOMC is expected to cut the federal funds rate again sharply. Financial markets have now priced in a decrease of at least 75 basis points to 2.25%, and, given the extent of the credit market difficulties, monetary policy makers are not likely to disappoint market expectations.

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...there is no question that the Fed will be lowering the fed funds rate from its current 3.00% level. The amount by which it will lower rates, or should lower rates, is where the arguments arise.

We can tell you that the market is pricing in an 84% probability of a 100 basis point cut and a 16% probability of a 125 basis point cut as of this posting. This implies that a cut of at least 75 basis points is a foregone conclusion as far as the market is concerned.

The realization that the market is thinking strongly that a 100 basis point cut is in the cards is remarkable on several fronts. First, there was a 0% probability of such a move priced in a month ago. Secondly, it would mark the largest, single cut in the fed funds rate since October 1984. And third, it reflects the growing sense of angst about financial market disruptions spreading deeper into the broader economy.

great post...so, a 75% and the market tanks...a 100% and a little upward move...a 125% and a DOW 500 up day...a 50% and it goes down 500 DOW points...agree?do these events make it more volatile tomorrow...read here:

everything happening tomorrow, tues march 18:
1-Goldman Sachs earnings before market open
2-Lehman brothers earning before market open
3-housing starts 8:30am est
4-PPI 8:30am est
5-events from yesterday (Bear Stearns, FED cutting lending rate)
7-FOMC announcement at 2:15pm est...
8-options expiration this Thursday also...

JUST ANOTHER DAY AT THE OFFICE.

Release Date: March 18, 2008
For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 75 basis points to 2-1/4 percent.

Recent information indicates that the outlook for economic activity has weakened further. Growth in consumer spending has slowed and labor markets have softened. Financial markets remain under considerable stress, and the tightening of credit conditions and the deepening of the housing contraction are likely to weigh on economic growth over the next few quarters.

Inflation has been elevated, and some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization. Still, uncertainty about the inflation outlook has increased. It will be necessary to continue to monitor inflation developments carefully.

Today's policy action, combined with those taken earlier, including measures to foster market liquidity, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will act in a timely manner as needed to promote sustainable economic growth and price stability.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Sandra Pianalto; Gary H. Stern; and Kevin M. Warsh. Voting against were Richard W. Fisher and Charles I. Plosser, who preferred less aggressive action at this meeting.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 2-1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of Boston, New York, and San Francisco.

E-Mini S&P500 on this Fed Day when rates were lowered by 75 basis poitns to 2.25%.