Cut rates one more time?

The consensus are in for Wall Street, and there will be a quarter percent rate cut on the fed fund rate on Halloween. This will be a treat for hedge fund, while being a trick for American households. The Federal Open Market Committee (FOMC) will make their announcement at 2:15pm on Wednesday, October 31.

The 1/2 of point rate cut of last meeting was a aggressive move by the Feds. Since than, Oil price have gone through the roof with record settlement of $93.53 a barrel this past Monday. The housing market continues to remain on a slump and mortgage rates have not drop to any level that would increase home sales. The Dow Jones Index has closed at a all time high of 14164(up 14% from a year ago). Gold futures are at 785 for Dec 07.

The majority of Americans want another rate cut, which will only lead to more debt for American households. For example, if rates are down, Americans will tap their homes for equity to extract more funds to help fuel holiday spending. But to their surprise, they will be denied this year by banks. With tighter credit markets, people will not be approved and the other reason is that home appraisals will come in much lower than a year ago. Let's not forget, home prices have dropped by more than 30 percent in the past year. On the other hand, a rate cut will benefit those who have variable rate loans tied to prime rate because it will help ease the payments on their loans, which translates to more income to spend for the holidays.

Will the feds cut rate? Yes, but not approved by PM.Banker. Inflation remains a risk, just look at Oil prices, and the value of the dollar. Rate cuts should be paused for the remainder of the year and based on data received after the holidays, the feds should than implement a more responsible monetary policy. The next FOMC meeting will be on Dec 11. 2007.