It’s all eyes on the Fed today; the market anxiously awaits the central bank’s 2:15 P.M. ET press release.
Some of the market bias towards a 0.50% rate cut has decreased in favor of a 0.25% cut. This shift is largely psychological.
Markets are trying to “get inside the head” of Fed chief Ben Bernanke, speculating about how he will react in the first Federal Open Market Committee meeting since the credit crunch reached a head in mid-August.
The speculation and guessing tells us that there is tremendous uncertainty about how the FOMC will vote today.
Uncertainty in markets leads to volatility.
No matter which course the Fed chooses – 50 basis points reduction, 25 basis points reduction, or something else — there will be a lot of traders scrambling to reposition their portfolio because of “bad bets”.
Mortgage rates are calm this morning. The calm likely won’t last. If you are floating your mortgage rate and don’t like taking on additional risk, locking your rate prior to the FOMC press release may be a safe play.