75 point cut, page-48

With the way the market has been acting lately, it would be easy to look to the Fed to come in early to bail us out with an emergency rate cut, but if this actually did take place I think the reaction would be the opposite of what people would expect. The impression it would send to the markets would be that we are in a panic situation and that things are in extremely bad shape. I just don't think that is the message that the Fed wants to put out at this time.

Right now, it looks like we can pretty much count on a 50 basis point cut at the next meeting, but rumors are already starting to fly that we could see additional cuts coming quickly thereafter. Do I think that we could use a full percent cut in rates? Yes, I do think that the market is calling for a higher than 50 basis point cut, but I have to believe that any emergency cuts would send out a horrible message to the market.

Emergency cuts are typically used during severe economic times, and although we are going through a rough period, I don't think anyone wants to start implying we are in a severe crisis just yet.

Inflation will continue to remain a major concern, but even inflation concerns have seemed to lessen a bit lately. If inflation continues to remain somewhat under control, the Fed will have an easier time lowering rates this year, but it will still have to be very careful not to over-inflate with excessive rate cuts. Some analysts are estimating that the Fed is going to need to lower rates from the current 4.25% all the way down to closer to 2% if it wants to fend off a possible recession.

Do I think we are going to see 2% fund rates this year? No, but I do think we are going to get down to around 3 or 3.25% before it is all said and done. Having said that, a lot depends on oil prices and consumer prices. Oil has somewhat leveled off around $90, and as long as we don't see prices jumping up to $110 or $120 a barrel, we should continue to see rates lower. Consumer prices will also be a factor, but we just got some encouraging news today that in December consumer price increases may have begun to slow.

So, will we get multiple rate cuts this year? I think definitely. Will we get any emergency cuts? I am betting not -- and more than that, I am really hoping we do not, for the message that sends could easily outweigh the results it would create.

What are your thoughts? Should we be looking for, or even hoping for emergency rate cuts over the next month, or will the Fed slowly continue to lower rates at its regular meetings? Let us know your thoughts on the pro's and con's over further rate cuts to the market.