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The Federal Reserve cut interest rates today, but the rate cut was not as deep as many investors had hoped that it would be.
Rates were cut by 0.75 percent today bringing the Federal Fund rate down to 2.25 percent which is the lowest that it has been since January 2005. The rate cut has helped the US dollar gain some ground against many major curriencies and has led to a mini rebound for the NYSE.
When the Fed cuts interest rates, it is cutting the rate at which banks lend to one another allowing banks to offer lower interest rates to consumers. With the recent turmoil in the US real estate and financial industries, a Fed rate cut does not automatically mean a decrease in mortgage rates.
So what is going to happen with mortgage rates since the Feds just cut rates? It is likely that mortgage rates will see a slight decline as the market has reacted positively to the news. The window for declining mortgage rates will be short lived as the overall economic status looks dismal for the immediate future.
As mortgage lenders and financial institution continue to lose money in the US real estate industry, mortgage rates for the long term will continue to rise. With many adjustable rate mortgage facing an increase throughout 2009 it is unlikely that mortgage rates will see a long term decrease, especailly with home values in the US depreciating.
As with every Fed rate cut, there is a window of opportunity for homeowners and homebuyers to take advantage of mortgage rates before they start to climb again.