The FOMC, during a scheduled meeting, elected to reduce the Fed Funds rate by 0.5% from 1.5% to 1.00%. Unless you have a HELOC that is floating (attached to the Prime Rate) this does not directly impact your mortgage interest rates. However, it will influence mortgage rates based on how traders react (50 basis points is what was expected). If you’re a long time reader of Rain City Guide, you’ve all ready heard this song and dance.
This morning, the FOMC cut the Fed Funds rate 0.5% to 1.5% in a globally coordinated move in advance of the scheduled FOMC meeting October 28-29, 2008. Another rate cut at the scheduled meeting is not out of the cards.
From the Press Release:
“Inflationary pressures have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices. Inflation expectations are diminishing and remain anchored to price stability. The recent intensification of the financial crisis has augmented the downside risks to growth and thus has diminished further the upside risks to price stability.
Some easing of global monetary conditions is therefore warranted. Accordingly, the Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, Sveriges Riksbank, and the Swiss National Bank are today announcing reductions in policy interest rates. The Bank of Japan expresses its strong support of these policy actions….
Incoming economic data suggest that the pace of economic activity has slowed markedly in recent months. Moreover, the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit.”
The FOMC does not directly control mortgage interest rates, which are based on mortgage backed securities (bonds). Actions of the Fed does influence mortgage interest ratesas traders/markets will react accordingly. HELOCs based on the Prime Rate (which follows the Fed Funds Rates) will enjoy a lower rate from this move (if the rate is unfixed).
Mortgage interest rates are for the most part unchanged…but the day is young! The markets continue to be very volatile. The DOW is currently down over 200. Treasury Secretary Paulson will be speaking later this afternoon…which may impact markets.
I’ll be posting a rate update tomorrow at Rain City Guide…if you can’t wait, then check out my live rate quotes.
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.