Will the Fed cut interest rate again?

James Ryan Jonas

This week, the US Federal Reserve (Fed) will speak and the market will listen.
After sifting through mixed corporate profit reports and uneven readings on the economy, Wall Street — and other stock markets around the world — will find out the answer to the long-debated question of whether another interest rate cut is in the offing.
The Fed, which meets Tuesday (October 30) and Wednesday (October 31), is in a bind. The credit markets remain squeezed, but energy and food costs are soaring and the dollar is tumbling. Controlling inflation and preserving market liquidity is one the central bank has always tried to balance, but the situation now has never been as precarious as before.
Most investors expect the Fed will decide tight credit is the bigger risk to the economy and lower rates, especially since U.S. policy makers have said many times they will help maintain liquidity in the financial markets.
The question, though, is how long the Fed will maintain that stance. Crude oil prices have soared about 50 percent so far this year, and the dollar has sunk more than 8 percent versus the euro to record lows.
On September 18, the Fed cut the federal funds rate by half a percentage point, boosting stocks markets worldwide. This time, whether inflation will take precedence over market liquidity — or the other way around — is still anybody’s guess.
What’s your bet? Join the discussion in the Will the Fed cut its rate again come Oct. 31?

James Ryan Jonas teaches business management, investments, and entrepreneurship at the University of the Philippines (UP). He is also the Executive Director of UP Provident Fund Inc., managing and investing P3.2 Billion ($56.4 Million) worth of retirement funds on behalf of thousands of UP employees.