Refinance rates could fall further following fed rate cuts
The fed agressively cut the fed funds rate by 3/4 of a point today, dropping the rate to .25%, the lowest level of all time. The historic move was a bold move to try and spur a rebound in the economy. The stock market reacted positively and rallied over 350 pts on the news. The news should be welcome to home owners on several fronts. Home owners with home equity loans that are tied into prime will see an immediate reduction to to their payments following the move. Mortgage rates could also benefit from this as well as the Fed is believed to be ramping up other programs to help bring down rates further. Consumers who are looking to refinance their mortgage should be aware that the fed move does not directly relate to how mortgage lenders price their mortgage loans.
The fed also indicated they are looking to make some agressive moves to help shore up the housing market. The move to lower the fed funds rate essentially eliminates the Fed’s ability to lower rates in the future. The fed has been forced to make bold moves primarily as they are focussed on trying to improve liquidity to the credit markets. Consumer confidence may benefit from this move as the perception is that the Fed will take whatever steps are necessary to try and fix the economy.
FOMC agenda
Ben Bernanke is in a no win situation. He has tried to jump start the housing market by improving the credit markets. Agressively cutting down the fed funds rate to a level of 2% this year should have been a major help. The relief has been very short lived. The spread between conforming and jumbo loans is still over two percent and the housing market is not showing any immediate signs of a recovery. While politicians sit by and do nothing in Washington, home owners continue to see their home equity disappear.
The Fed is no longer in a position to focus exclusively on the housing market. They have lost their ability to influence this market as oil prices, inflation and a declining dollar on now the major focal points of the market. The overall economy is feeling a rapid strain from the rapid increase of oil prices and the stock market has dropped to levels last seen in early January. The fed is not likely to raise the fed funds rate in June, but could start going down this road as early as the fall. They will need the government to try and jump start the housing market in a similar fashion to their sucess with keeping spending moving forward with the economic stimulus package passed earlier this year.
Fed cuts key rate
The Federal Reserve as expected cut the fed funds rate by .25% lowering the key rate down to 2%. This translates over to a prime rate of 5%. The move was expected by most economists who recognize that the fed is facing an increasingly difficult task of balancing rates and economic growth.
The fed was non committal on whether they would continue lowering the fed funds rate this year. Despite a struggling real estate market the fed is now faced with record oil prices and must juggle the impact this could have with inflation. Additionaly, the fed is under pressure as the U.S. dollar continues to decline. The economy has been quite resiliant despite the struggles in the housing industry. Mortgage rates typically do not move when the fed cuts the fed funds rate, however yesterday after the announcement their was a slight decline in the bond market which would be good news for mortgage rates and those considering a refinance.