The economic calendar thickens up considerably this week, giving a read on manufacturing, inflation and housing...but many of these reports will take a back seat to the Fed's Policy Statement and Interest Rate Decision, to be released on Tuesday afternoon. Traders are forecasting a 100% chance of a Fed rate cut. About half the traders are expecting a cut of ¼%, and the others expecting a cut of ½%. Of perhaps greater importance is tone of their highly analyzed Policy Statement. Comforting words about inflation will help bonds and home loan rates.
Remember that a cut to the Fed Funds Rate would impact the Prime Rate, which affects Home Equity Lines of Credit, credit cards, business loans, car loans and the like - but does NOT have a direct correlation to home loan rates. For example, if the Fed should cut the Fed Funds Rate by .25%, you would likely see a change to your Home Equity Line of Credit by .25%, if it is tied to the Prime Rate as most are - but do not expect regular home loan rates to drop correspondingly, as the Fed's take on inflation will guide the way.
Stock prices have a history of doing well after the Fed begins to cut rates. Since 1985, there have been seven initial rate cuts by the Fed. During the year following the initial Fed rate cut, the S&P 500 has gained an average of +13.7%.
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