FOMC Meeting Tuesday and Wednesday

Calendar October 29, 2007 | Posted by Jorge

The Federal Open Market Committe (FOMC) “The Fed” will meet tomorrow and Wednesday.  What does this mean for you?  Well word around The Street says a 25 basis point cut for the federal funds rate is coming.  Short term, stocks should shoot somewhat upward, especially after the rough couple of weeks we’ve had.  If you deal with currencies and commodities, specifically oil, expect the value of the dollar to drop and the price of oil to gain some strength, at least from my observations from the last rate cut.  With the financial sector potentially rallying from the cut, I’ve gone ahead and opened a few calls on the financial sector ETF, the XLF, or Financial Select Sector.  I’m just learning about ETFs and how to hedge and gain traction on the overall market so in the coming weeks I’ll go ahead and write up some guidelines on ETFs that options traders tend to focus on.

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  • The Fed's between a rock and a hard place. The last time I saw them cut, the value of the dollar dropped and oil went up. I would think the same events would transpire this week if the Fed repeats. The lower the dollar goes, the more foreign influence we have in our business, the higher oil goes, deflation sets in, etc. It's just a huge mess right now. Adding to that the folks foreclosing which I don't think really benefit from a rate cut since it's not an immediate fix, and things are just awful. But yeah, I'll be closing some positions out on the stock increase if the cut comes.
  • It seems to me that the general US economy is looking pretty bleak - along with a potential bubble building in china. I'm betting that the fed cut boost stocks temporarily and then shows a quick decline.
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