How much the Fed will cut tomorrow? Vote HERE!?

The only economic report released today was the New York Empire State Index for September, which came in less than expected and Mortgage Bonds had (yawn) little reaction.

All eyes and ears are now focused on tomorrow's Federal Open Market Committee meeting (11:15am PST).  The debate continues on how much the Fed will cut rates. Will it be 25 or 50bp? My money's on 25 bps - Big Ben is conservative and not nearly as sympathetic to Wall Street as Greenspan was.  Futures traders disagree with me though.  The Fed funds futures market is priced to reflect a 42% chance of a 0.25% cut compared to a 58% chance of a 0.5% rate reduction.  Let's see what YOU think!?  Vote in the comment section with a simple "25" or "50" (feel free to comment further of course).

While the cut itself will be the major headline, bond prices will react to what the Fed says about inflation. If the Fed holds its view on inflation moderating, Bond prices may benefit. But if they state that inflation is worrisome, Mortgage Bonds will likely come under pressure, causing home loan rates to rise. Despite Greenspan's comments on inflastion last night on 60 minutes, short term economic indicators will show that inflation is currently under check.  PCE, the Fed's favorite measure of inflation is within their 1-2% comfort range at 1.9%, we had our first negative jobs report number in 3 years reducing compensation inflation worries, and the GDP is widely expected to contract to 2% or less - all signs which show that overall inflation are currently under check.

Why "currently" you might ask?  My concerns over the falling dollar, US trade deficit, US budget deficit, retiring baby boomer generation, and chances of a democratic White House lead me to believe that we are in for some rough times ahead.  Watch out for a deeper analysis of this in the near future.

For today, with prices just above the 200-day Moving Average, I recommend... (to float, lock, or wait until next year?  You'll have to contact me directly for the last words!)