Monday, October 22, 2007

Fed cut almost a done deal

That is, according to options on the federal funds contract. According to the Cleveland Fed's model, the probability of a 25 basis point cut is about 57%, while a 50 bp cut is assigned a 16% probability and the no change option is given a 26% chance.

It's worth noting that there was a dramatic shift in perception last week. The 25 bp cut's probability rose about 33 percentage points, while the 50 bp cut's odds rose by 13 percentage points.