Stocks hope for a Halloween rate cut

By Cal Mankowski

NEW YORK (Reuters) - Wall Street expects a two-day Federal Reserve meeting next week to end with another cut in interest rates as financial firms struggle with losses tied to subprime mortgages and related securities.

Trading in November fed funds futures show a 25-basis- point cut in the benchmark rate to 4.5 percent is fully priced in, with only a small chance that there will be a bigger cut to 4.25 percent.

Should the Fed decide to leave rates unchanged, clearly there will be disappointed investors when the announcement comes on Wednesday, which happens to be Halloween.

At the last meeting, on September 18, the Fed cut the fed funds rate 50 basis points to 4.75 percent and also lowered the discount rate by 50 basis points to 5.25 percent. It was a bigger cut than the market expected, and stock prices rocketed higher with the Dow industrials gaining 2.5 percent.

Michael Cuggino, president and portfolio manager of the Permanent Portfolio Funds in San Francisco, said the Fed's decision next week "could go either way" -- a 25-basis-point cut -- or no cut at all.

He said some argue that an October cut would provide insurance that the economy will avoid recession. But others say standing pat gives the Fed time to analyze the effects of the September cut.

When the announcement does come, he said, "What they say is going to be as important as what action they take."

Although the Fed meeting looms large, Wall Street also has to contend with corporate earnings, which are not as robust as in previous quarters, oil prices at record highs and the crucial monthly jobs report at the end of the week.