FED meeting, What Fed will do?

I feel strongly that FED may not cut rate this time.

The reasons are;

1.  Economy is still healthy enough to provent itself sliding into ressession.
2.  Since last cut, dollar weakening has significantly accelerated.
3.  Oil price and all base materials cost sharply increase due to dollar devalue.
4.  Import price up due to dollar devalue. 
5.  All 2, 3, 4 increase inflation pressure which already showed the early sign in PPI, CPI report.
6.  50 base Fed fund rate cut and discount window rate cut only one month, need to take a time to adjust before action.

$100 dollar oil definately will hurt not only US econmoy but also world economy, espectial China's economy. And US will hurt badly if China's ecomony is slowing down. Because China now is driving force to world economy. And US increasingly depend on China's cheap import and big market for US export goods. US has increased 35% export to China since beginning of this year. 

Fast devalued dollar will also cause some countries lose confidence of US treasure and start to sell which will casue dollar devalue significantly and trigger crisis due to hyper-inflation.  China usually a big buyer of US Treasure bone, but last month, the net trade of US bone is negtive and estimate China has sold more than 3 billion bone. Japan also has similar action and turn to Euro instead of dollar. 

This is the consequence of weak dollar policy.  
Market just works fine at time, why risk to trigger hyper-inflaction?  

I think last month Ben  Bernanke largely be kidnaped by financial world and forced to make that decision.

This time he will show his real power.  It is not wise decision to cut 0.5 rate again and inflation market further without obvious reason.

Any thing could happen, people do make mistakes. So I guess there are three possibilities:

1. 5% chance Fed will cut 0.5% fed fund rate
2. 25% chance Fed will cut 0.25% fed fund rate
3. 70% chance Fed will take no action.

Case 1.  We will see a big rally right after Fed meeting. It may continue to year end. Then, we will face a big correction.
              early next year.
Case 2  Market will rally a few days to a week, then start to pull back.

Case 3  Market will has big correction right after Fed meeting, and last one month to test Dow 200MA 7% correction from the top, then, get stablized and resume the uptrend at end of Nov, then start year-end rally.

So it's better to wait Fed meeting to decide what to do next.

Take care.

   

[wavePlayer]

I believe Ben's wisdom. But you may be right. There are 25% chance this could happen. From another point of view, whether Ben can take resposibility or just follow the market consense, we need to watch closely. No surprise is good for market but it is irresponsible for the economy for the long run. Because it is artificially inflate market and will have severe consequence. If he cut this time, I will think Ben is actually worse than Greenspan. Because he make an even bigger bubble. You can not correct previous bubble by using a big bubble.

[DDstudy]

I always enjoy your post. But this time, I can not agree with you, I believe there is 80% chance FED will cut 0.25 this time and MKT is already kind of priced that in for this week's up.