Countdown To Fed... 1 Day!

Well, the day is upon us at last! The Feds will release their policy statement tomorrow afternoon after their 2 days meeting is over. Even though a 25bp cut in fed fund rate is what everyone's expecting, there are still plenty of reasons to suggest that the Feds might just hold rates steady! (that is why the fed fund futures are still not pricing in a more than 100% chance of a rate cut)The main reason of all would be the value of the dollar. When interest rates go down, the dollar value goes down too as a supply of new dollar floods the market, which could result in increased inflationary pressure. The dollar has already declined against major currencies in a big way and further decline could have complex consequences. Already, the commodities markets have edged higher across the board. In a nutshell, with a 25bp cut already priced in so far, there is really no telling how the market will react when the policy statement is released tomorrow. Will a rate cut spur a new rally? Not necessarily since much of it has already been priced in and there remains a number of heavy weight releases this week including the Employment report this Friday, which could still change things. Will not getting a rate cut spur a market decline? Very probable, especially since the market is reacting faster and faster to news and new information than ever before (Efficient Market?).

Today, the Consumer Confidence report turned in the worst reading in 2 years, bringing the Dow immediately to its intraday low. The Consumer Confidence report is not a historically important report due to the fact that it measures mainly consumer confidence towards the labor market. The labor market has been slow to react to changes in the economy so far, thus reducing the Consumer Confidence report's value as a leading indicator. However, it remains a good confirmation indicator of what is already known, or rather, already being suspected in the economy. What does a lower Consumer Confidence suggest about what the Fed is going to do? Nothing, as this is not an indicator Uncle Ben watches in his policy making.