Wall Street Buzzing Over Rate Cut

Wall Street is abuzz with anticipation of Fed action later today. The only debate is will the Fed cut the discount rate by 25 basis points or 50?

25 or 50? Bernanke's Fed faces a key test

Most economists think the central bank will cut by a quarter-percentage point to 5.0%, but some are attracted to the somewhat strong move of a half-percentage point.

"While the arguments favoring a bold move are compelling, we believe the chances of a 25 basis point cut carry a higher probability," said Michael Moran, chief economist at Daiwa Securities America Inc., in a note to clients.

The Fed's are not exactly what you would call bold decision makers. Therefore, I say they will cut the discount rate 25 basis points while also quietly expanding the money supply via open market operations (which most of the public does not understand), and then they will sit back and see how things go.

Regardless of all the analysis and computer modeling they do, the Fed's will almost always just tweak rates by 25 basis points at a time and then see what happens.

By the way, this also presents a tasty profit opportunity out there for anybody who knows how to set themselves up correctly to take advantage of a rate cut.