Will the federal reserve cut interest rates on halloween?

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Coming upon us tomorrow is one of the most critical Federal Reserve Board meetings arguably since the one held after 9/11 as markets watch with anticipation to see if the Fed cuts rates or holds them pat. Most people are betting on a quarter-percent rate cut; but others aren’t so sure.

To be honest, after last meeting’s surprise half-point cut I’m not sure what they’ll do. I do know one thing - if they don’t cut tomorrow stocks are going to get killed. The market has been run up with a Fed cut already priced in to the market; and any change from that stance is going to take a lot of money off the table in stocks.

From Market Watch:

Many economists and players in the financial markets expect the Federal Open Market Committee to lower the target on the federal funds rate to 4.50%, down from 4.75% currently. The FOMC panel cut the target rate by half a percentage point on Sept. 17, saying aggressive action was needed to preempt a serious downturn in the economy.

The FOMC is trying to manage risks, economists said.

“The risk of a financial-market disruption spilling over into real economic activity is too serious for the Fed to ignore,” said Kevin Logan, U.S. economist at Dresdner Kleinwort, in a note to clients.

“Not easing at this juncture runs the risk of a financial-market catastrophe and a possible recession,” he said.

Lower interest rates boost economic growth over time by making it easier to borrow money. But there’s also the caveat: Lower rates can fan inflation if they stimulate too much demand.

A lower rate can also lead to increased pressure on the dollar, which has fallen to multi-decades lows against other major currencies.

A cut in the fed funds wouldn’t be in reaction to a failing economy but would act as insurance against recession, economists said.

What do you think the Fed will do? And more importantly what do you think they SHOULD do? Bernanke has consistently said that he will not save the financial markets by throwing good economic sense out the window; although some argue that the Fed did exactly that with their last .5% rate cut.

I am pretty sure they’ll cut a quarter; they can’t let the economy fall in to recession on their watch. If the country does they have to say that they did everything they could to keep it from happening even if it means stoking inflation, killing the dollar and other collateral damage.