Will Fed Rate Cut Really Help the Economy?
Tomorrow, Fed members are expected to enter a meeting and then come out and announce a reduction in the basis interest rate. While some expect the Fed rate cut to help the economy, there are plenty who aren’t betting on an immediate turnaround. The Wall Street Journal reports on the effects of tomorrow’s expected Fed rate cut:
In the near term, however, the big problem is that it takes months for rate cuts to translate into economic growth, by affecting things such as investment, consumer spending and exports. In credit markets, some banks have become less willing to extend credit for purposes like takeover financing, because of a fear of default. A quarter-point or half-point change in base rates isn’t going to change that very quickly.
The housing market appears to be in too much trouble to be totally rescued by a Fed rate cut, and creditors from card companies to home mortgage lenders are tightening standards in a way that will make it more difficult to take advantage of such a cut. Fees are going up, and there is a great deal of reluctance to trust that borderline borrowers will really pay their loans back.
Refinancing with a second mortgage, or even getting a first home mortgage may be more tempting as mortgage loan interest rates drop, but if you don’t have good credit, you might not be able to take advantage of the rates.
The mortgage industry is not alone, however. Even though stocks are usually buoyed by such Fed rate cut news, the Dow is down slightly this morning. Of course, this doesn’t mean it won’t recover.
Tags: Fed rate cut, Fed rate cut help economy, home mortgage loan, home mortgage lenders,
second mortgage, mortgage loan interest rates, refinancing second mortgage
