Wall Street is steeling itself for a tumultuous week for investors as markets anxiously await a key verdict from the Federal Reserve on American interest rates and a slew of crucial data on the US economy.

The Fed is widely expected to end its latest two-day policy meeting on Wednesday with a fresh, quarter-point cut in rates, following up on last month’s aggressive half-point reduction, as it acts to shore-up the faltering American economy in the face of a slumping housing market and global credit squeeze.

Futures markets are betting on a 90 per cent chance that the Fed’s rate-setting Open Market Committee will deliver a new, quarter-point rate cut after a recent spate of bleak news showing that America’s housing downturn is deepening. Economists are divided on the chances of a second half-point rate cut in a row, with a majority believing that the Fed will opt to move more cautiously than this.

While recent news on US housing market developments has been grim, other signals from the American economy have been mixed.

The Fed’s own “Beige Book” survey of conditions indicated a worrying tightening in commercial banks’ lending standards, which could turn the screws on consumer demand and corporate activity. However, the latest retail sales data for September were robust, showing a rise of 0.6 per cent, while the number of new US jobs created last month was 110,000, bigger than expected, with upward revisions to earlier months’ figures.

Wednesday’s near-certain reduction in US rates will pile further pressure on the battered dollar, which last week sank to record lows against the euro and on its trade-weighted index against a basket of international rivals.

Analysts said that American stock markets may react negatively to the Fed’s verdict, if some investors are pinning their hopes on a half-point reduction to give a bigger boost to growth prospects for next year.

The Fed’s strategy is complicated by the inflationary dangers posed by the sharply weakening dollar and by soaring oil prices, which reached record levels last week. The central bank faces a difficult task in weighing the impact of higher energy prices on inflation against their damaging effect on growth, as higher fuel bills would further curb consumers’ spending power.

Attention will turn on Friday to the latest US employment figures. Consensus forecasts point to payrolls data showing employers created an extra 90,000 jobs last month, although some economists predict it could be 60,000.

Going up

The US economy is likely to have notched up buoyant GDP growth in the third quarter when first estimates are unveiled on Wednesday, economists predict. Analysts fear that an annual growth rate of 3 per cent or more in the autumn is set to prove a last gasp before a sharp slowdown into next year.

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