The funds rate matters less, but there are three reasons why it still matters. The Fed will repeat its themes from Oct. 8 and might add a line to reflect the idea of keeping the funds rate low for a time; that would help steepen the yield curve -- a favorable outcome.

The real story regarding the Federal Reserve is its various liquidity operations; the federal funds rate is second fiddle. The federal funds rate nonetheless remains a powerful tool, and it would be a mistake to dismiss its importance for two reasons.

For one, cuts in the federal funds rate are not done by fiat but by altering the amount of money in the financial system. In other words, in order to cut the funds rate, the Federal Reserve must inject additional reserves into the banking system --an announcement is just an announcement. Second, large amounts of household and business debts are tied to the prime rate, which is tied to the funds rate. (Mind you, these debts are tied to the target funds rate, not the rate the funds rate trades at in the inter-bank market each day. That is why an official cut in rates is significantly more important than a decline in rates in the inter-bank market.)

To add a third reason, cuts in the funds rate make news on Main Street in ways the CPFF, the TAF, the MMIFF, the TSLF, etc., can't.

The market is priced fully for a 50-basis-point cut. Whether it is priced for more is debatable; fed funds futures are trading at 0.88%, but that rate probably reflects an expectation that the funds rate will trade below the 1% target, just as it has the past two weeks, when it traded at an average of 0.79%, well below the Fed's 1.5% target. More likely, the market is placing very low odds on a 75-basis-point cut. A 75-basis-point cut would help steepen the yield curve, and that is one basis for choosing the more aggressive route.

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