Fed’s 0.25% Cut All Ready Baked in the Cake

Today the FOMC cut the Fed Funds Rate by 0.25% to 2.00% and the Discount Rate by  0.25% to 2.25%.  These rate cuts do not directly  impact mortgage interest rates.

Mortgage interest rates are based on mortgage backed securities (bonds).  How bond traders react to the Fed Rate cuts and the Fed Statements that correspond to this cut, will impact mortgage interest rates.  To read today’s FOMC statement, click here:

“Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters….

The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity.”

The markets have been anticipating the 0.25% cut to the Fed Funds Rate and therefore, this cut all ready was baked in the cake.   Had the FOMC not cut or cut deeper, we would see much more dramatic results with mortgage interest rates as bond traders would be trying to decipher if the Fed was reacting to higher inflation or a recovering economy.

Currently bonds are actually reacting positively as the market are anticipating that the FOMC is done with the rate cuts.   Will mortgage rates improve?  The proof will be in the pudding cake.