Monday, March 31, 2008

MORE fun w/Economics: What is the FED up to?

The Fed has steadily cut short-term interest rates since Sept. 07 but this doesn't affect mortgage rates as people seem to think (well, they usually go UP!). Cutting the "Federal Funds" rate effectively lowers the Prime Rate, which can affect most Home Equity loans as well as credit card rates (not that they will actually lower your interest rate w/o you asking!). These cuts also make it easier for companies to purchase/finance equipment and inventory. Likewise, they have made more funds available to banks in order to provide liquidity. The markets wer spooked by one of Wall Street's larger investment houses' liquidity concerns. The Fed/JP Morgan stepped in to save the day (too little/too late?) and the markets are still in flux. Add in the higher costs of gasoline (though recent inflation reports actually dropped a bit) and you have a pretty rough mix. The Fed traditionally cuts rates to spike economic activity and raises rates to combat inflation. Energy costs and higher commodity prices threaten to slow their pace of cuts (another cut is widely expected next week). One interesting correlation is that bad news for the economy can be linked to lower interest rates (now @ 5.75% or so) Stop sitting on the fence waiting for 5%-make your move NOW as credit is still available. The issue today is can you still QUALIFY for a loan? Yes, lenders have already taken the subprime hit-they will do anything to not originate any NEW ugly loans. Common sense is gone, fear has taken over. MORE info from GSU's chief economist (yes, a REAL Economist, not a "faker" like me : )

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