Fed Funds Rate now at 4.25%

The FOMC announced that the Fed Funds Rate and Fed Discount Rate are both being reduced by 0.25%.   Remember (I can never say this enough) this has no direct impact on your mortgage interest rate EXCEPT for home equity lines of credit which are based on Prime Rate.  If you have a HELOC, your rate will decrease by 0.25%.  Lucky you!

Mortgage rates are based on mortgage backed securities (bonds) and will adjust based on how the markets react to this adjustment.  The 0.25% drop is pretty much what was being anticipated by the markets and has been priced into mortgage rates.   This is why I’ve been urging borrowers to lock in before today and last Friday’s Jobs Report since mortgage rates (bonds) tend to react negatively to inflation.

What will happen now is everyone will be interpreting what the future may hold based on the Fed’s Statement.   Although this cut is what they expected, many are disappointed with the statement:

“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending…. core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation.”

The closing comment suggests they are prepared to cut again or do what ever they feel is needed:

“The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.”

The Fed has now cut rates a full point since September.  Currently the stock market is reacting negatively.  I will update this post should we see dramatic changes to mortgage rates following this action by the FOMC.   

21 thoughts on “Fed Funds Rate now at 4.25%

  1. Tim, due to the stock market’s reaction (the Dow is down over 200); I’ve actually received rate sheets with price improvements. BTW Tim…my fax machine isn’t humming…but my email is! FAX…HAH!!! It’s a paperless world…you know that.  😉

  2. 10 yr Bonds down. I watch Treasury’s among other things and have been moving investments around lately, more than I ever have. 🙂 Thanks for the link. The market will be up 300 tomorrow, then down another 180 the following…..

  3. Tim wrote: “The market will be up 300 tomorrow, then down another 180 the following….. ”

    No! Don’t you know that these things go up and down in a straight line! That it’s down 300 is evidence of impending financial collapse. 😉 😀

  4. If the FED is lowering rates, it is because the banks are losing loan volume and their reserve requirements are declining.

    Repeat the following 1000X until you understand it:


    Bernanke could change his underwear from boxers to briefs, and that would be just as significant.

    If the FED is cutting, economic activity is slowing. The economic activity is driving the FED, not the other way around.

  5. Silly proposal – tried before ( Japan ), and years of deflation followed. They need to let the market purge the excesses. The longer things are delayed the worse it will become.

  6. SORRY my comment was regarding the FEDS plan which is silly…… as previous post.

    The problem is not liquidity the problem is solvency.

  7. This is a pretty serious matter for wholesale brokerage altogether if WAMU closes their most profitable wholesale office. Next thing you know CWBC is closing, too…

  8. Washington mutual will not be around a year from now nor will countrywide. They will be bought and not at premiums. The toxic portfolios make these great shorts if your into such a thing. Commercial credit market spreads are indicating continued turmoil. We are in the second or third inning on this unfortunately.

  9. One of my students sent me this email regarding WaMu Bellevue Wholesale:

    “They fired all Long Beach employees that were transferred to WAMU conforming reps in Sept. and the Bellevue’s Home loan center will shut by the end of Feb. 08.”

Leave a Reply