even if they cut, its not guaranteed that mortgage rates go down ..2 reasons: (1) mortgage rates are tied to the 10 year ..not the fed funds .. it is possible (probable) that the 10 year has already priced in a .50 bp move ..and if the fed only goes .25 bp ..the 10 year will sell off causing its yield to actually RISE ! (2) most arms and consumer loans are tied to the LIBOR ..which has been going nowhere but UP ... the move by the fed will not affect this rate ... the only reason why the fed will move is to please wall street ..even though they probably know that any move less than .50bp will not do anything but weaken our dollar and invite inflation . --m
Re the 10 year: No. If the 10 year priced in 50 and the Fed does 25, it will go up, and the yield will go down, in anticipation of a further slowdown in the economy. If, OTOH, it priced in no cut and the Fed does 25, it will go down and the yield will go up because the bond folks will be thinking the Fed is too soft. I don't know what it's priced in, of course, as I don't trade it. The above is a hypothetical.
The big problem is the asset backed commercial paper market. When its exchange literally froze up in mid August, it scared the hell out of the central banks. That's why they came out with the emergency cut at the discount window after 15th aug, Wednesday's data was released and analyzed. Since the fed is going to start a monetary easing cycle, this will cause expansive credit once again. Consequently, another asset bubble will form. At this point we don't know where for sure but my guess is, the bubble will form in emerging market equities.
Sorry - there isn't one in the SSEC already? I can fathom a resurgence of asian equities (outside of china's already dizzying run) and possibly asian real estate. Commodities might also be the beneficiary of excess liquidity. I just don't see EEM being the be all end all. It is too obvious, and these things rarely play out in obvious ways.
my little understanding is that there's going to be a quarter point cut, b/c Ben has to appease the markets else there be call for blood but he knows enough not more so the dollar will not slide too much further, actually whatever the rate is immaterial, since they can always print more or print less