The US Federal Reserve faces pressure to cut interest rates by as much as a full percentage point or more from the current 3% at its scheduled Tuesday policy meeting. In early trading Monday, options prices indicated roughly even odds of a 75bp cut or a 100bp cut – with some traders even betting on a 125bp reduction. Before the latest deterioration in financial markets and the crisis at Bear Stearns, Fed policymakers signalled reluctance to cut rates by more than 50bp at this meeting. Bloomberg reports Tuesday that the dollar traded near record lows against the euro on speculation of a full percentage point cut. Meanwhile, Reuters reports that IMF chief Dominique Strauss-Kahn warned the risk of contagion from the US financial markets crisis was now “very high”.
