Sunday, September 16, 2007

Expectations for the Sept 18th Fed Meeting

Implied from Fed Funds Options*:

*Note that these probability estimates are from the prices of fed funds options, which pay out based on the effective fed funds rate, not the target rate. To the extent that the effective rate remains under the target rate, they overestimate the probability of a 50bp cut, and underestimate the probability of a 25bp cut.

From the survey of 130 economists on Bloomberg:
77% expect a 25bp cut,
18% expect a 50bp cut, and
5% expect no cut at all.

I expect a 50bp cut.

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