Yesterday, the Fed cut their rate half a percentage point to 4.75, making the prime rate to 7.75 percent. This will help borrowers because it will be cheaper to borrow money. The rate will fall for credit cards interests and home equity line, encouraging borrowing. Great! More ways to help us run up our debt!
Most people think that the mortgage rate will decrease because of this move from the fed but this is not true! The fed cutting its rate does not mean that the fix mortgage rate will go down. Consider that from out of the 13 rate cuts from Jan 2001 to June 2003, the 30-year fix rate mortgage in the month after fell eight times but rose 5 times!
Fixed mortgage rates mostly change in response to people’s expectation of inflation. Do you believe that we will have an inflation problem in the near future?
It is hard to say whether mortgage rates will change in response to this but I doubt that it will be lowered much! I just hope that people will still be able to afford their house even though I’m hoping that the house price will go back down to reasonable levels so I can purchase one.
Let’s all just go to Japan and borrow money to buy a house 
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{ 5 comments… read them below or add one }
In my last three posts on my blog, I’ve talked about how this interest rate cut wasn’t good for the lower and middle class. The value of the dollar is going down, inflation is going up, and wages well they won’t change.
——
Also for a brief moment the Canadian Dollar was worth the same as an American Dollar…who thought that would ever happen?
Neville: I’m not sure what to make out of this because the dollar is so weak but at least Jim Craemer thinks we will snap out of this once our economy starts to have growth again (i’m not so sure though).
Well if the economy starts to have growth because of the rate cut, the big issue the Federal Reserve will have to deal with is inflation.
Everything from precious metals to food is rising in value. To combat that the Federal Reserve will then have to raise rates aggressively which would slow down the economy.
So the FED made a bad move cutting rates. The DOW was only 1.7% off its all time high when he made the cut in rates. Trust me if our economy and the world economy is so great:
1. Hedge Funds bad decisions shouldn’t bring the economy to a crawl
2. A 1000-2000 point move down in the DOW shouldn’t kill the economy. Hell 2-
3 years ago people would have killed for the DOW to be that high.
I just think the banks are hiding what’s really wrong, since this rate cut was so aggressive.
Neville: It would be very interesting to see what the DOW would have been if there wasn’t any rate cuts though. THe DOW was down 1.7% when the FED announced it but everyone was buying stocks in anticipation for it to cut rates already.
I know that the housing situation is really bad, especially here in orange county, california because many people bought a bigger house than they can actually afford but I don’t know how much of an effect something like this would have on the economy.
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