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.

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.

The market has been under severe pressure from the rapid increase with oil prices. There is a growing concern that the level of inflation in the market will continue to grow, despite the slow down with the overall economy as energy prices continue to climb. The economy has been quite resiliant in the 2nd quarter. Ben Bernanke recently issued statements stating that he believed inflation would slow down as the economy slowed down, but many investors are now concerned that the Fed would look to increase the fed funds rate as early as the fall of 2008. The housing market has yet to break out of its down turn and higher mortgage rates will place a further strain on this industry.

Consumers who may be in the market to buy a home or are considering a refinance should act soon to lock into fixed rate mortgages as there is a good chance interest rates will continue to move up through the course of the summer.

For the second month in a row, the job market posted a negative figure, this month a total of 80,000 jobs were lost. The job market is simply another indication that the U.S. economy is in a period of recession. The interesting part of yesterday’s news is that the stock market has already priced in a negative figure and did not have a significant sell off, even with the disappointing news. Many economists are now predicting that the Fed will be forced to cut the Fed funds rate by and additional half percent later in the month. The yield on the ten year bond dropped below 3.5% which is good for long term mortgage rates. The market mentality has shifted from fears of  a recession, to acknowledging that the economy is in a recession and simply trying to determine how long it will last. This is good news for individuals looking to refinance their mortgage as you should expect fixed mortgage rates to continue to hover under six percent.