Yet Another Fed Funds Rate Cut: January 30, 2008

Today's FOMC Meeting signaled yet another Fed Funds Rate cut of 50 basis points (.5%), lowering the Fed Funds Rate to 3.0%.

This is great news for those homeowners who have a Home Equity Line of Credit (HELOC) as the Prime Rate has now been reduced to 6%; rates on HELOC's are based off the Prime Rate. This also helps homeowners in adjustable rate mortgages as it is known to reduce the rate of the index on their adjustable rate mortgage. An adjustable rate is calculated by adding the index + margin. The margin is your fixed rate while the index is your variable rate.

If you'll be soon applying for a mortgage, my recommendation still remains to Lock- rather than Float your rate! 

Since the implemented rate cut, stocks are looking for a reason to rally and we still have a couple of Economic Reports scheduled for release that might affect interest rates. Amongst them:

PCE Report        Thursday

Jobs Reports     Friday

For now, interest rates remain at yesterday's and Monday's levels. Check back for any changes to the rate.

According to the FOMC's Press Release, the Fed will continue to monitor financial markets and is ready to step in with additional rate cuts if necessary.

From the Press Release:

"Financial markets remain under considerable stress, and credit has tightened further for some businesses and households.  Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity.  However, downside risks to growth remain.  The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks."

The short interpretation is: things are really bad.

As Dan Green points out, Chicago's Certified Mortgage Planning Specialist, "With Another Rate Cut, the Fed May Be the Proverbial 'Fool In the Shower'."