Feds Likely to Cut Interest Rates on Dec. 11

Hope grows for a half-point cut from Federal Reserve

Recent comments by Fed Chairman Ben Bernanke and vice chair Donald Kohn indicate a rate cut is likely on Dec. 11. The only question is how big?

A quarter of a point cut or a half of a point cut? That is the big question for investors to grapple with between now and the Federal Reserve's next policy meeting on Dec. 11.

Wall Street has heard signals loud and clear that a cut is coming. First, Fed Vice Chairman Donald Kohn said on Wednesday that the central bank needed to be "nimble," and then on Thursday night Fed chair Ben Bernanke, speaking before a business group in Charlotte, N.C., indicated that the Fed will stay "alert" and "flexible."

"Bernanke gave the markets an early Christmas gift last night in Charlotte. If there were any doubts about a rate cut, they are now gone. He wrapped it up, stamped it and sent it in the mail," said John Norris, managing director of Oakworth Capital, a private bank based in Birmingham, Ala.

According to futures listed on the Chicago Board of Trade, investors are placing a 100 percent bet that the Fed will lower the key federal funds rate by at least a quarter of a percentage point to 4.25 percent. What's more, traders are factoring in a 34 percent probability of a half-point cut to 4 percent.
By Paul R. La Monica, CNNMoney.com editor at large

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