Fed Cuts Interest Rates Again

zippyjuan · 01-30-2008, 01:10 PM

The Fed does not have a lot of tools to move the money supply and stimulate or slow the economy and at this rate they will be running out of them if things do get worse down the road. Their main interest rate is now down to almost the core rate of inflation (which excluding energy and food prices is 2.7%) meaning that the cost of banks borrowing from the Fed after inflation is almost nothing. Further reductions in the rate or increases in inflation would basically turn the cost of banks borrowing negative. This is a huge drop in rates the Fed has enacted.

Core inflation is low and unemployment- while it has risen slightly- is also very low at five percent.
http://my.earthlink.net/article/top?...130-2026816127

Quote:

Fed Cuts Interest Rates by 1/2 Point
By MARTIN CRUTSINGER (AP Economics Writer)
From Associated Press
January 30, 2008 2:31 PM EST
WASHINGTON - The Federal Reserve on Wednesday cut a key interest rate for the second time in just over a week, reducing the federal funds rate by a half point. It signaled that further rate cuts were possible.

The Fed action pushed the funds rate to 3 percent. It followed a three-fourths of a percentage point cut on Jan. 22, a day after financial markets around the world had plummeted on fears that the U.S. economy was heading into a recession. That decrease had been the biggest one-day move in more than two decades.

The half-point cut Wednesday followed news that the economy had slowed significantly in the final three months of last year with the gross domestic product expanding at a barely discernible pace of 0.6 percent, less than half what had been expected. The report came amid increased concern from several quarters about a possible recession.

In a brief statement explaining their decision, Federal Reserve Chairman Ben Bernanke and his colleagues said that "financial markets remain under considerable stress."

The Fed move was approved on a 9 to 1 vote. Richard Fisher, president of the Fed's Dallas regional bank, dissented, preferring no change in rates.

The rate cut marked the fifth time that the Fed has cut the funds rate since it started with a half-point cut on Sept. 18 in response to the severe credit crisis which hit global markets in August.

The latest Fed action was expected to be quickly followed by cuts in banks' prime lending rate, the benchmark rate for millions of consumer and business loans. The Fed's hope is that by making credit cheaper, it will encourage more borrowing, giving the economy a needed boost.

The Fed's half-point move met expectations of financial markets and was a bolder move than the smaller quarter-point cut that many economists had been expecting.

In its statement, the Fed said that "downside risks to growth remain" and pledged to "act in a timely manner as needed to address those risks." That was seen as a pledge to cut rates further if the economy continues to weaken.

On inflation, the Fed officials said that they expected inflationary pressures to moderate in coming quarters but they also pledged to monitor price developments closely.

The GDP report showed that a key gauge of core inflation, which excludes energy and food, jumped at an annual rate of 2.7 percent in the final three months of last year, the fastest increase in a year and up sharply from a 2 percent increase in the July-September quarter.

The economy has been dealt a series of blows from a two-year slump in housing to a severe credit squeeze as banks faced with billions of dollars in losses from mortgage defaults have cut back on their lending and tightened standards.

The GDP report showed that the housing collapse had depressed economic growth last year by the largest amount in a quarter-century. Policymakers are worried that the slump could intensify this year as millions of subprime mortgages rest at higher rates.

To combat the threat of a recession in an election year, the Bush administration has been negotiating with congressional leaders for an economic stimulus package of around $150 billion, focused on tax rebates for households and business tax breaks to spur investment. The House passed its version of the proposal on Tuesday but Senate action could be delayed by efforts to expand the relief to senior citizens and the unemployed.

The Fed move Wednesday occurred at the first regularly scheduled meeting of 2008 for the Federal Open Market Committee, the group of Fed governors in Washington and regional Fed bank presidents who set interest rates.

The Fed's three-quarter-point cut on Jan. 22 was taken after an emergency video conference held by Bernanke and other members of the FOMC.

That rate cut, the biggest reduction in the funds rate in more than two decades, was seen as an effort to boldly demonstrate that the central bank was prepared to do whatever necessary to keep the country from slipping into a recession - or at least make the downturn milder than it would have been otherwise.

Financial markets had complained that once the credit crisis hit in August, the Bernanke-led Fed had been too tentative in its responses until last week's move.

Many private economists believe the central bank will keep cutting rates through the spring, especially if the unemployment rate keeps rising. The jobless rate jumped from 4.7 percent to 5 percent in December, the biggest one-month increase in five years.

cheapie · 01-30-2008, 01:27 PM

saw that as well. wish i was in the market for a house.

VTGreg · 01-30-2008, 01:32 PM

repost.

VTGreg · 01-30-2008, 01:33 PM

Time to refinance. Not much room for anyone caught in an ARM or exotic mortgage to complain right now. They can convert to a 30 year fixed at historically low rates.

brainsmile · 01-30-2008, 01:37 PM

lots of refi loans coming

CornMonkey · 01-30-2008, 01:39 PM

Quote:

Originally Posted by cheapie

saw that as well. wish i was in the market for a house.

Yay for me!

cheapie · 01-30-2008, 01:39 PM

i'm at 5.75 from the last loan and it's not worth doing so unless it drops down to under 5.

DarkFury · 01-30-2008, 01:56 PM

Quote:

Originally Posted by cheapie

i'm at 5.75 from the last loan and it's not worth doing so unless it drops down to under 5.

I'm at 6%, so I'm almost in the same boat.

Jah Rulez · 01-30-2008, 02:01 PM

I'm in for the refi. I was waiting for this last cut.

zippyjuan · 01-30-2008, 02:25 PM

5.85 here- with the possiblity of paying off in five more years. Definately not worth a refi. But a coworker had his adjust recently (from 4 something to six something) and now has to come up with $1000 more a month. It could help people like him (he won't get back down to the fours but can still lock in probably below six).

Mortgage rates do not necessarily follow Fed rate cuts. I had refinanced once quite a while ago (my first loan was adjustable and my payments nearly doubled) and was watching the Fed cut rates (the consistant steps Greenspan was using) but the mortgage rates were not moving down at the same time- in fact they went up a bit so I locked in what I could and refied again when they came lower. But at this time, demand for mortgages is low (and standards are high) so rates have been coming down.

MrGreg · 01-30-2008, 02:31 PM

I wonder if we will see a rash of people trying to refi, but unable to because
A) They don't qualify for a FRM for the house they already "own" based on income
B) They can't get an appraisal high enough

zippyjuan · 01-30-2008, 02:54 PM

I think if you can go through your current lender (they don't want to lose your business and interest payments) you can get one without a new apraisal.

VTGreg · 01-30-2008, 03:02 PM

I'm locked in at 6.125% but have only been making payments for about a year. Also been fortunate that the property has appreciated about 6% over the past year.

zippyjuan · 01-30-2008, 03:58 PM

Well, the stock market yawned at the news of the rate cut- it was sort of expected although not quite certain that it would happen. It was up about 200 points early on but finished the day down almost 40.

brainsmile · 01-30-2008, 08:12 PM

If anyone needs a good mortgage person PM or email me.

Disclaimer: I'm not going to recommend myself

It's someone else.

01-30-2008, 01:27 PM	#2
cheapie Chief of Naval Operations Join Date: Aug 2002 Location: raising my pimp hand strong Posts: 13,038	saw that as well. wish i was in the market for a house. __________________ 70% of the world is covered by water. The rest is covered by Bob Sanders

01-30-2008, 01:32 PM	#3
VTGreg Rear Admiral Lower Half Join Date: Jun 2002 Location: Charlotte, NC Posts: 2,533	repost. __________________ It only ends once... Anything that happens before that is just progress. Courage is not the absence of fear but rather the judgment that something else is more important than fear.

01-30-2008, 01:37 PM	#5
brainsmile Chief of Naval Operations Join Date: Jun 2000 Location: woah... why is welfareloser here with me so early in the morning and more importantly why am I wearing her clothes?!? Posts: 13,754	lots of refi loans coming __________________ ********************************** DCM #1 (Founder) "Nobody beats Vitus Gerulaitis 18 times in a row." - Vitus Gerulaitis on beating Jimmy Connors after 17 failed attempts.

01-30-2008, 02:31 PM	#11
MrGreg Captain Join Date: Jul 2000 Location: Beaverton, OR Posts: 1,529	I wonder if we will see a rash of people trying to refi, but unable to because A) They don't qualify for a FRM for the house they already "own" based on income B) They can't get an appraisal high enough __________________ -The nerd formerly known as vectorcalculus

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01-30-2008, 01:33 PM	#4
VTGreg Rear Admiral Lower Half Join Date: Jun 2002 Location: Charlotte, NC Posts: 2,533	Time to refinance. Not much room for anyone caught in an ARM or exotic mortgage to complain right now. They can convert to a 30 year fixed at historically low rates.

01-30-2008, 01:39 PM	#7
cheapie Chief of Naval Operations Join Date: Aug 2002 Location: raising my pimp hand strong Posts: 13,038	i'm at 5.75 from the last loan and it's not worth doing so unless it drops down to under 5.

01-30-2008, 02:01 PM	#9
Jah Rulez Lieutenant Join Date: Nov 2000 Location: Hell...it's dark and hot Posts: 385	I'm in for the refi. I was waiting for this last cut.

01-30-2008, 02:25 PM	#10
zippyjuan Picture of the Day Guru Join Date: Oct 2002 Location: Sunny San Diego Posts: 8,756	5.85 here- with the possiblity of paying off in five more years. Definately not worth a refi. But a coworker had his adjust recently (from 4 something to six something) and now has to come up with $1000 more a month. It could help people like him (he won't get back down to the fours but can still lock in probably below six). Mortgage rates do not necessarily follow Fed rate cuts. I had refinanced once quite a while ago (my first loan was adjustable and my payments nearly doubled) and was watching the Fed cut rates (the consistant steps Greenspan was using) but the mortgage rates were not moving down at the same time- in fact they went up a bit so I locked in what I could and refied again when they came lower. But at this time, demand for mortgages is low (and standards are high) so rates have been coming down.

01-30-2008, 02:54 PM	#12
zippyjuan Picture of the Day Guru Join Date: Oct 2002 Location: Sunny San Diego Posts: 8,756	I think if you can go through your current lender (they don't want to lose your business and interest payments) you can get one without a new apraisal.

01-30-2008, 03:02 PM	#13
VTGreg Rear Admiral Lower Half Join Date: Jun 2002 Location: Charlotte, NC Posts: 2,533	I'm locked in at 6.125% but have only been making payments for about a year. Also been fortunate that the property has appreciated about 6% over the past year.

01-30-2008, 03:58 PM	#14
zippyjuan Picture of the Day Guru Join Date: Oct 2002 Location: Sunny San Diego Posts: 8,756	Well, the stock market yawned at the news of the rate cut- it was sort of expected although not quite certain that it would happen. It was up about 200 points early on but finished the day down almost 40.

01-30-2008, 08:12 PM	#15
brainsmile Chief of Naval Operations Join Date: Jun 2000 Location: woah... why is welfareloser here with me so early in the morning and more importantly why am I wearing her clothes?!? Posts: 13,754	If anyone needs a good mortgage person PM or email me. Disclaimer: I'm not going to recommend myself It's someone else.

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