Wall Street Eyes Another Cut

Thank you, Mr. Bernanke -- may we have another?

That's what the markets are saying after the Federal Reserve's 75 basis-point cut in its target federal funds rate this past week. Wall Street is looking for more from the Fed, which meets this Tuesday and Wednesday.

Just how much more the central bank is willing to give remains to be seen, though a near-consensus has been reached that there will be some further reduction in the rate. Most observers seem to be looking for another half-point.

"I think they'll do 50," says James Glassman, senior economist at JPMorgan Chase. "Having gone this route" of making the 75 basis-point cut this past week, "there's good reason to believe they've decided to be decisive."

The thinking goes that another half-point easing would catch the Fed up with what markets are expecting and pump enough liquidity and borrowing power into the system to bring the economy back on track. While conditions have been changing rapidly and more data could change the situation, a cut of that size could give policymakers a little breathing room to sit back and assess the situation without having to think about another cut right away.

"If they do 50, they may want to imply that they have a lot of stimulus in place" in the accompanying policy statement "and let it play out for a while," Glassman says.

However, a sizable minority is betting on a 25-basis-point cut, according to Charles Rotblut, senior market analyst at Zacks Investment Research.

"If they do 25, it would be a disappointment" to the markets, Glassman says. "They'd have to leave options open" for more cuts in the near future.

On the other side of the coin, the futures market indicates that a few daring souls are looking for another three-quarter-point drop. "The argument for 75 is, things aren't that bad now, let's accelerate the economy while we can and not wait too long," Rotblut says. "I don't know if we have enough data to support cutting rates by 75."

In general, he says, "people just want to see a willingness for the Fed to continue to act and provide whatever stimulus is needed."

Even though the Fed will be the main focus of the week, there's a lot going on around it -- not least with the stock market, which has been gyrating wildly amid fears of recession, and as news continues to roll out about problems at financial firms and in the credit markets.