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.
Dollar gains focus
The value of the dollar is becoming a larger focus of the Federal Reserve. The recent rate cuts in early 2008 have had a significant role in escalating the dollars slide. The Fed has no direct ability to improve the dollars value against other foreign currencies, but they are accutely aware that the recent cuts have diminshed the value to an all time low agains the Euro.
The slide of the dollar has a number of key issues. The recent run up of oil prices is said to be linked to the value of the dollar declining, thus having a greater impact on oil and gas prices as these are global commodities. This past year has seen the conversion of one dollar to one euro fall to a record low of 62 cents per Euro, before recently climbing to 64 cents. This decrease is certain to have an impact on Americans traveling abroad as well as U.S. firms who have global operations.
The Fed will be closely watching the upcoming economic data including the job markets as welll as inflationary data to determine how soon they may actually begin raising interest rates. If the market sense some slight improvements, it would not be unquestionable to believe the Fed could start raising the Fed Funds rate as soon as the early fall, even if the U.S. real estate market has not fully recovered.