On Sept 18 Fed’s will decide if they will cut rates or leave it neutral. In a survey with the banks the opinion is that the Feds will cut rates by at least 50 basis points. The dilemma for the FED is that if they lower interest rates, it will cause a dollar weakness which will cause a sell off in the bond and broad market. Overseas investors will deposit their money elsewhere at higher returns. The U.S. Dollar closed below $80 today at $79.90. The $80 mark was considered the floor of the dollar for the past 30 years, now that this is broken any cut in rates will weaken the US dollar and the overall market.

Let’s play “What if”

Option A – No rate cut
Fed doesn’t cut rates then a lot of investors will be surprised and the market will drop severely. The FED can pump more money into the system to help the economy.

Option B – Cut 25 basis points
The market will sneeze and trend sideways for a while with uncertainty. Inflation may start to creep in and weaken the dollar.

Option C – Cut 50 basis points
The broad market will like this because they are greedy and the general market will rise but at the expense of inflation which means higher prices on everything we buy. Gold will rise and trade above $1000 by the end of the year and we will see oil at over $100 per barrel. The US dollar will get crushed against the Pound, Euro and Yen.