Fed lowers key rate down to 1%

The FOMC moved agressively on Wednesday to lower the fed funds rate down to one percent, the lowest level the fed funds rate has been at since 2001. The Fed has faced an enormous amount of challenges over the past twelve months in their attempts to keep the economy moving forward following the fallout in the housing markets.  The government has agressively moved to try and restore investor confidence and bring liquidity back into the marketplace.

The drop of the fed funds rate will have an immediate benefit to consumers who have loans that are tied into the prime rate which is now at 4%. The lowering of this key interest rate does not mean that we will see a drop in long term fixed mortgage rates. Long term fixed mortgage rates generally do not move following a fed rate cut. As more homeowners are refinancing today into fixed rate mortgage loans the widening of the yield curve, which could make short term adjustable rate mortgage loans more attractive is not likely to gather much attention.

Consumers with credit cards tied directly into the prime rate and home owners with home equity lines of credit that are tied into the prime rate could see a reduction in their interest due as early as next month. The fed also left the door open to additional future rate cuts should the market and economy continue to struggle.