Hi there:

Well, the Fed cut the Federal Funds Rate by a point, lowering the rate to 4.75% from 5.25%.  This is the first move in over a year and the first cut in over 4 years.  This was a bit of a surprise as a majority had expected only a point cut.  This will translate into a reduction in the Prime Rate to 7.75% from 8.25%.  So, anyone with a line of credit on their home will see a point drop in the rate on their line.

The Fed comments indicate they are very aware of the housing and credit problems in the country and that these are and will continue to burden the economy.  The cut was an attempt to forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.

The stock market is rallying but the Bond yield is actually up.  This means the Fed cut today is not likely, at least in the near term, to result in lower mortgage rates.  Mortgage rates (and Bond yields) had drifted down over the last month or so as the economic data began to suggest the Fed would have to cut.  Its all about timing.  As I write this, the stock market is up about 250 points but the Bond yield is actually up at about 4.50, up from 4.46 yesterday.  More to come on this as the markets digest the Fed comments.

Now the question going forward is what will the data tell us about inflation, jobs, and the housing/banking turmoil.  More Fed cuts could come if the data suggest more of a slowing of the economy than the Fed is comfortable with.  Hope this helps.

Matt Culp, J.D.

Mortgage Broker/Owner
Bainbridge Lending Group, LLC
510-LO-27342

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