We took our boys snowboarding last night at Snowqualmie where I began to receive text message alerts on my Treo about various markets being slammed from around the world based on fears of a US recession. The Fed met last night deciding to make an intermeeting cut to the Funds Rate to 3.5%. This is the biggest single Fed Funds rate cut since 1984.
“The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth. While strains in short-term funding markets have eased somewhat, broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households. Moreover, incoming information indicates a deepening of the housing contraction as well as some softening in labor markets.”
The Fed also reduced the Discount Rate to 4.0% (this is the rate banks can borrower directly from the Fed) in an attempt to add liquidity to the markets.
Unless you have a HELOC, this will not directly impact mortgage rates except for how investors react to the cut. Should they seek the safety of bonds (like mortgage backed securities) rates will go down as they have slightly this morning. The markets are all ready off their low lows of this morning. Mortgage rates will continue to be very volatile.
Remember, the Fed is scheduled to meet on January 30 where another rate cut is still heavily anticipated.
Update 1/22/2008 1:00 p.m.: Here is a graph that I came across compliments of my subscription to Loan Tool Box which shows the impact to mortgage interest rates when the Fed has recently cut the Funds rate.