The Federal Reserve Board cut the short-term interest rate one quarter of a percent to 4.5 percent. The prime rate will drop to 7.5 percent.
Don’t expect yields on CDs (especially short term CDs) to fall or for fixed-rate mortgage rates to fall, this time. After the previous half a percentage cut in September, neither reacted as expected.
In doing so, the Feds stated that while economic growth from July through September was solid, they expected it to slow, partly reflecting the “intensification” of the housing market correcting itself, that inflation is still a risk, due to rising energy and commodity prices, and that the risks of inflation and economic slowdown are “roughly” in balance.
A further translation of What the Fed Said.
Per Bankrate:
If you have an adjustable-rate mortgage, the Fed’s decision to cut interest rates by 25 basis points will likely cause your monthly mortgage payment to dip at your next reset. Rates on new fixed-rate mortgages also may dip, but that’s much less certain.
Bankrate suggests tuning “out the talking heads on financial news programs and instead ask a simple question: The Fed just did ‘X’ - what did the bond market do? In particular, keep an eye on the 10-year Treasury rate. If that falls, mortgage rates will fall.”
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