The Federal Reserve Open Market Committee has cut the fed funds rate by 100 basis points since September 2007 amid growing concerns about the health of the U.S. economy. Yet, despite the recent easing of financial conditions, traders remain pessimistic about the extent of the US subprime loan meltdown. Expectations for the outcome of the January 31 FOMC meeting changed dramatically on Tuesday after a key report on retail sales for December came in much weaker than expected. According to futures trading on the Fed Funds rate, traders are fully pricing a 50 bps rate cut and as much as 46 percent probability of a 75 bps rate cut to 3.75 percent.
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