Fed likely to trim their target rate by three-quarters of a point on Tuesday

The January CBOT federal funds futures contract is priced at 99.6800, suggesting a target rate of 0.32%, which implies a 100% chance that the Federal Reserve FOMC will cut their target rate on Tuesday by at least a half point to 0.50% and a 72% chance that the FOMC will cut by three-quarters of point to 0.25%.

In short, a half-point rate cut is baked into the cake and a three-quarters point cut is quite likely but not a certainty.

Usually, the market has a more certain view on what the Fed will do, but given the current state of the economy in a "recession with adjectives" and very uncharted territory, the market is credibly somewhat uncertain.

I would lean towards a half-point cut, but given the state of the economy and hints of deflation and sharply falling employment and a potential collapse of the auto industry looming, this is not exactly the time for the Fed to be pulling punches. So, I would be more surprised if they cut only by a half-point than if they went for the full three-quarters point.

Meanwhile, there will be plenty of opportunities to earn more than 2% or even 3% on your cash at banks since they really need the cash. Thank your favorite deity for FDIC insurance.

-- Jack Krupansky