Feds cut interest rate quarter-point

[livinglegend_86]

http://www.msnbc.msn.com/id/22202624/

Fed cuts key interest rate a quarter-point
Central bank reacts to widening mortgage crisis with third drop of the year

The Federal Reserve cut a key interest rate by one-quarter of a percentage point Tuesday, trying to keep the country out of recession.

The reduction in the federal funds rate to 4.25 percent marked the third rate cut in the past three months. Fed officials signaled that further cuts were possible if a severe downturn in housing and a crisis in mortgage lending get worse.

Commercial banks were expected to quickly match the latest reduction by trimming their prime lending rate, which would reduce this benchmark rate for millions of consumer and business loans to 7.25 percent.

In addition to cutting the funds rate, the Fed announced it was reducing its discount rate, the interest it charges to make direct loans to banks, by a quarter-point as well to 4.75 percent. This reduction was aimed at encouraging banks to borrow more freely from the Fed at a time when there are worries that a rising number of bad loans will prompt banks to tighten credit conditions too severely, adding another strain on the already fragile economy.

The Fed embarked on this round of rate cuts in September in response to severe turbulence in credit markets around the globe as investors reacted to various reports of mounting losses from defaults in subprime mortgages, the latest fallout from the worst slump in the U.S. housing market in more than two decades.

After cutting the funds rate by a half-point on Sept. 11 and a quarter-point on Oct. 31, the central bank indicated that those two reductions might be all that were needed to combat the threat of a recession given that financial markets appeared to be stabilizing.

However, increased market turbulence following the October meeting and growing fears of a recession caused the Fed to do an about-face.

In a brief statement explaining its action, the Fed said that recent economic data indicated that the economy is slowing, “reflecting the intensification of the housing correction and some softening in business and consumer spending.”

[01WhiteCobra]

reflecting the intensification of the housing correction and some softening in business and consumer spending.

And the fucking fed gives us a band-aid to cover a gapping wound.

The market is more pissed at the discount rate and not the headline rate. Didn't do anything to relieve the pressure.

[Geor!]

And the fucking fed gives us a band-aid to cover a gapping wound.

The market is more pissed at the discount rate and not the headline rate. Didn't do anything to relieve the pressure.
If they keep fucking with things, it will only lead to a bigger can of worms in the long run. I don't look forward to the next several years, that's for sure. They keep talking about a recession. Fuck that, how about a depression?

[gip99drop]

Wow that helped a lot.

[Sean88gt]

While this is shortsighted, I hope they keep coming until my house is finished.

[01WhiteCobra]

While this is shortsighted, I hope they keep coming until my house is finished.

When will it be done? They'll keep dropping until they reach 3.25 sometime late spring or early summer.

[kangol]

http://img112.imageshack.us/img112/7905/ouchzx3.jpg

Great, thanks Bernanke. Now I want to go skiing and/or snowboarding.

[chuckacosta]

Great! Now our fucking CD rates are gonna tank even more at the CU and all the old folks are gonna keep jumping ship as they have been for the last 2 months or so. :mad: :rolleyes:

[01WhiteCobra]

LOL, someone pulled the fire alarm at the NYSE (literally, buzzers going off everywhere. "Please leave immediately...")

[livinglegend_86]

Didn't do anything to relieve the pressure.

hence the bold ;)

[01WhiteCobra]

hence the bold ;)

Yea was just pointing out it really wasn't the headline number, the fed fund rate, but the discount rate that the "big boys" were pissed about.

[Sean88gt]

When will it be done? They'll keep dropping until they reach 3.25 sometime late spring or early summer.

Mid part of next year (I'm hoping before july)

[AdamLX]

LOL at the 400 point swing in the DOW.

Can't wait for better mortgage pricing tomorrow with Wall Street crying :D

[livinglegend_86]

Yea was just pointing out it really wasn't the headline number, the fed fund rate, but the discount rate that the "big boys" were pissed about.
gotcha ;)
'
how will it impact the refi market? I was hoping to get it done in mid-jan or mid-feb...

[AdamLX]

gotcha ;)
'
how will it impact the refi market? I was hoping to get it done in mid-jan or mid-feb...

Good rule of thumb, when the stock market is tanking, interest will be down.

Before the Fed said they will probably cut rates .5 over 2 weeks ago the market was sluggish and driving interest rates down slowly to 5.75% for me. The Fed made their announcement and ever since rates have been steadily climbing up to about 6.25% now (average 30yr fixed).

10 year treasury has already jumped over 1 point since the annoucenment today which should curtail the rising rates and possibly give us something a little lower.

[01WhiteCobra]

gotcha ;)
'
how will it impact the refi market? I was hoping to get it done in mid-jan or mid-feb...

The fed funds rate itself really doesn't have anything to do with mortgage rates (and vice versus.) Long term interest rates are going down because the "smart people" see the economy slowing. As those rates come down the mortgage market has to come down to stay competitive.

I'd say if you have an adjustable now would be a good time to refi.

[livinglegend_86]

The fed funds rate itself really doesn't have anything to do with mortgage rates (and vice versus.) Long term interest rates are going down because the "smart people" see the economy slowing. As those rates come down the mortgage market has to come down to stay competitive.

I'd say if you have an adjustable now would be a good time to refi.
Key word: smart people.

Although they doesn't neccessarily relate to one another, usually the public views it as one and both will tend to stay close, in terms of dropping and rising %. I was waiting on this last % drop because i knew the mortgage rates will more than likely follow suit. Hopefully... :o

[01WhiteCobra]

Key word: smart people.

Although they doesn't neccessarily relate to one another, usually the public views it as one and both will tend to stay close, in terms of dropping and rising %. I was waiting on this last % drop because i knew the mortgage rates will more than likely follow suit. Hopefully... :o

They'll come down a little but I would try to pick a bottom for sure. The economy is gonna slow, maybe even a recession, so that will help rates for sure.

[FreightTrain]

I got a ?. When does it make sense to refinance your home mortgage. Currently I have a fixed rate of 6.25 and how much lower would it have to go to make sense to go thru all the hassel. I'd love a 5.25 rate lol.

[mikeb]

From what i've been reading, it looks like wall street was not at all happy with the 1/4 point cut, looks like they wanted 1/2 point. Some articles are predicting a recession. It all looks bad from my reading :(

[01WhiteCobra]

I got a ?. When does it make sense to refinance your home mortgage. Currently I have a fixed rate of 6.25 and how much lower would it have to go to make sense to go thru all the hassel. I'd love a 5.25 rate lol.

Really depends on things like closing costs and what you can refinance at. There are a few mortgage brokers on the site that can give a more detailed response but I've always been told if you can't get a reduction of 1% it really isn't worth it. Not sure if that is really a good rule of thumb or not.

What are rates averaging now on a 30? 5.75 or so? I'd say if that's the case you probably come out behind if you are at 6.25.

[01WhiteCobra]

From what i've been reading, it looks like wall street was not at all happy with the 1/4 point cut, looks like they wanted 1/2 point. Some articles are predicting a recession. It all looks bad from my reading :(

I think the street was more concerned about the discount window only being cut a 1/4. I think they were looking for a 1/2 there. The discount window is what is going to help the banks the most.

Doesn't do much good to lower the fed funds rate if the banks ain't gonna loan out money. :D

The discount window is what the banks can borrow from the central bank whereas the fed funds rate is inter-bank borrowing (and none of the mofos are lending money to each other, lol)

Looks like WAMU (my bank) took it on the chin today as well and is exiting the sub-prime and laying off 1000+ people.

[miketyler]

I got a ?. When does it make sense to refinance your home mortgage.

Some of the mortgage brokers I have talked to base refi decisions on a two year max break-even. In other words, if it takes more than two years to recoup all the costs of the refi, then don't do it.

Am not sure I understood it especially if you knew you were going to stay there for at least that much time. Maybe someone can explain?

[AdamLX]

Some of the mortgage brokers I have talked to base refi decisions on a two year max break-even. In other words, if it takes more than two years to recoup all the costs of the refi, then don't do it.

Am not sure I understood it especially if you knew you were going to stay there for at least that much time. Maybe someone can explain?

Let's say the cost of the refi was $4000 and by doing this you are saving $200 per month. In 20 months you will have saved $4000 which breaks you even. Most people doing a refi expect to be there quite some time afterwards.

Some people will refi to drop their rate .25% and save minimal money and not break even with their closing costs for years. Then there are other who would break even with their closing costs in 4 months and won't do the deal because they think the costs are too high or somesuch.