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Durable Goods Orders Likely to Spook Fed

The Fed meets tomorrow and the stock and bond markets are pricing in a 50bp cut in the Fed Funds rate.

Unfortunately today, we have a Durable Goods Orders number released by the government that is stronger than anticipated and stronger than its been in five months. The durable goods number is a proxy for business spending, so if business spending is strong (as the CEO’s of many companies have said in the press releases accompanying their quarterly financials) then the Fed has less pressure to lower rates to fight a potential recession.

Its unknown whether the Fed will lower rates the anticipated 50bp or maybe just 25bp. The consumer is in trouble with subprime loans going belly up and non-subprime delinquencies rising, the big banks are in trouble with dumb lending practices and stupid investments, so they likely will continue with the 50bps, but the odds are less today than they were yesterday.

Mark