Yesterday in a surprise move, acting over growing concerns of the US economy possibly moving towards recession, which resulted in crashing world stock markets yesterday, the Fed today has cut down interest rates to 3.5 from 4.25, the largest rate cut move since 1990. Also, the discount rate was lowered by 75 bps to 4%.
Market response to this action has not been typical of other Fed rate cuts. Typically investors view such moves as what the economy needs and start investing in equities, which results in less money in the bond market resulting in higher long term rates. Yesterday's move has been viewed as an act of desperation by some and the bond market is still strong and their has been a little improvement in fixed mortgage rates. This may be short lived and those looking to refinance or lock in a rate for a purchase should be locking or at least be ready to lock on a moments notice.
Friday President Bush came up with roughly a $140 billion economic stimulus package to provide pickup for a slowing economy. In addition, he has urged Congress to make his 2001 tax cut plan permanent. Federal Reserve Bank chairman Bernanke also stressed the need for quick implementation of a stimulus package in his testimony before the house budget committee. Bernanke admitted that the economy has a slow growth pace, but we’re not in a recession.
The last three weeks have gone well for the mortgage market, as 30-year mortgages dropped to 5.69%, the lowest rates in 2 and half years. 15-year mortgages were at 5.21%, compared to 5.41% last week as per Freddie Mac.
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