FEDs Cut The Rate - What Does It Mean To You?
There has been a lot of talk in the past several months about the Federal Reserve cutting the Fed Funds rate and the Fed Discount rate. What does this mean to you?
Each time it means something slightly different and each time we need to watching things to see how it all shakes out – the market reacts differently.
So, let's get a little understanding of why the mortgage rates go up when the short term rates go down. One word - INFLATION. Everyone has been experiencing the effects of this lately but not many people understand that the FED rate cuts contribute substantially to the rising cost of goods and services in the U.S. Long term fixed investments, which include mortgages, are negatively impacted by the effects of inflation. This is the primary factor behind the inverse relationship of long term and short term interest rates.
The latest cut maybe different because the FED has given strong indication that this will be their last cut for awhile. They are going to wait and see what the effects of this whole string of cuts has before moving on. Time will tell but we are still in the most volatile interest rate market, perhaps ever.
It will pay to keep close attention on all of this as you make major financial decisions. If you have any questions about rates and the effects, please don’t hesitate to contact me!