The Fed Rate Cut and the New Cash Liquidity Plan
Yesterday’s Fed rate cut is sparking a degree of debate amongst analysts. Inman News reports on what the Fed says its main concern is:
An intensification of the housing correction and increased strains in financial markets prompted the Federal Reserve to lower key short-term interest rates today, the third consecutive meeting since September it has taken such steps.
However, some feel that the move was too conservative, focusing too much on inflation concerns and neglecting to do what is necessary to kick start the economy to a point that the credit crisis is surmounted.
A Fed rate cut affects a variety of people on different levels, and some will be more affected than others by the rate cut. Most likely to be affected are those with a home equity line of credit. Someone looking for a first mortgage may be surprised to realize that the mortgage rate is unlikely to drop. Why? Because first mortgage rates are influenced by 10-Year Treasury Notes, and those saw a surge yesterday on the Fed rate cut news.
What is more likely to help first time mortgage loan borrowers is the Fed’s plan to inject liquidity into the financial market. (Of course, Treasuries are down on this news, erasing yesterday’s gains.) MarketWatch reports on this new effort, designed to help the credit crisis:
The Federal Reserve, as part of a coordinated plan with global central banks, said on Wednesday they were taking steps to inject up to $40 billion in reserves into the money markets to try to ease the credit crunch currently roiling the financial system.
Between the mortgage bailout plan, the Fed rate cut and increased cash liquidity, something should be moving in the economy soon. But all this is still only a temporary fix. The way business is done hasn’t been changed.
Tags: Fed rate cut, home equity loan, mortgage loan, second mortgage,
cash liquidity plan, credit crisis, inflation
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