Wall Street: counting on a cut

Wall Street is looking for the US central bank to again lower interest rates, though the size of the cut is under debate.

Interest rate futures see a 50-50 chance of a half percentage point Federal Reserve rate cut at its meeting on Tuesday, as the system tries to prop up an economy that has been roiled by the sub-prime crisis, a poor housing sector and tighter credit.

The release of US jobs data on Friday that could shift views about how aggressively the Fed will cut rates. But a Reuters poll of 17 US primary dealers -- banking firms that trade directly with the Fed -- found all of them are counting on a cut.

Policymakers' options are narrowing as they weigh competing priorities for market intervention. Fed Chairman Ben Bernanke recently stated that policymakers were questioning whether the balance had shifted between growth and inflation risks, affecting possible Fed rate cut decisions. Treasury Secretary Henry Paulson is also considering a plan to freeze sub-prime rates for up to five years. The US Federal Deposit Insurance Corporation estimates that 1.54 million sub-prime mortgages -- valued at 331 billion dollars or more -- will move to higher interest rates by end-2008, raising the prospect of massive defaults.