Las Vegas Mortgage Rate Alert
The Fed cut rates again! The Fed cut the Fed Funds Rate and the Discount Rate .50% today.
The Fed uses the federal funds rate to control the supply of available funds. When the Fed lowers the federal funds rate this encourages banks to borrow from one another, using the reserves to grant more loans which in turn helps to fuel the economy.
The Discount Rate is the interest rate the Fed offers to member banks and thrifts who need to borrow money to avoid having their reserves dip below the required minimum. If the fed lowers the discount rate, the prime rate will come down, and mortgage interest rates will dip (this is usually only true for shorter term adjustable rate mortgages) to more favorable levels. This can boost a slumping housing market.
Remember, thirty year fixed rate mortgages are not really impacted by the types of cuts that the Fed made today. The moves by the Fed could be considered inflationary and this could actually increase the rate on 30-year fixed rate mortgages.
The last time the Fed had a long cutting cycle was back in 2001. The Fed cut eleven times in eleven months, and eight of those cuts were by .50%, for a total of a 4.75% drop in the Fed Funds Rate. But fixed rate mortgage rates were actually higher at times because inflation ticked higher. The most recent example of this would be when the Fed cut .75% just last week. The 10 year Treasury note yield moved up from below 3.4% to 3.6% and fixed rate mortgage rates moved higher. This is happening again today with the 10 year now at 3.75%.
I still think that it is possible for rates to move lower. The reason will be the stock market. It is obvious that the Fed fears a recession and that became more than clear today. The market rallied about 160 points and then sold off. If this continues then a flight to quality strategy by investors could move more money into bonds and then rates go down.
Hope I haven’t confused you too much.
For a further discussion of the actions of the Fed and mortgage rate trends click here.
January 30th, 2008 at 5:00 pm
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