Shifting Opinion On Fed Cut

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What a difference a day makes. Just two days ago, DealBreaker's reader poll revealed an almost even split between those who thought the Fed would today announce a 50 basis point rate cut and those predicting a 25 basis point cut. The 50 bps cut had a slight edge, in fact.
Late yesterday we began a new poll asking about the cut, and it shows a dramatic shift in sentiment. The 25 bps cut now leads decisively, garnering support from 58.2% of responding readers. Good economic news, perhaps coupled with suspicions that last Monday's sell-off and subsequent emergency rate cut was sparked by SocGen selling off positions by their allegedly rouge trader, seems to have persuaded many readers that the Fed cut won't be as deep.
Others have begun to argue that the Fed won't cut deeply today in order to preserve some dry powder for later cuts.
"Bernanke has the choice of give his all (meaning 50 to 100 bp) and seeing the market rise briefly, then fall under the weight of ongoing reality. Or he can do 25bp, and watch the market fall," Finn of the Blax Alternate blog argued in comments. "With the small cut, he can save face and and say, 'Well, we could have propped the market if we wanted to, but are being responsible' (all the while praying the market rises). With a 50bp cut or more, he basically tosses all his power into the ring, only to demonstrate to all that the Fed is powerless (as well as desperate, and foolish)."
Becky Quick made a similar argument this morning on Squawk Box.
This shift occurred prior to the release of data this morning showing that the the U.S. economy slowed sharply in the fourth quarter of 2007. Gross domestic product rose at a seasonally adjusted 0.6% annual rate October through December. These numbers were likely available to Ben Bernanke yesterday, and so may have already played a role in the FOMC's rate cut discussions.

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