Upcoming Fed Rate Cut

Inflation will play a major role in how the Federal Reserve decides how to handle the next rate cut and following rate cuts.

It could be possible that the Federal Reserve leaves rates at 2.25 percent to test market reaction, but it is more likely to see a 0.25 percent reduction in rates on Wednesday. If the Federal Reserve does lower rates on Wednesday it is expected that they will indicate a hold on further rate cuts to help fight inflation.

The reason we may start to see a hold in interest rates is because the financial forecast has not gotten worse since the last meeting. Credit markets, although not improving, are falling right in line with the Feds expectations.

If the Federal Reserve is able to get inflation under control it is a strong possibility that we may see a rate increase before the end of the year. In order for the Feds to raise rates we would first need to see the US dollar strengthen as well as gaining control of energy and commodity prices.

The aggressive cutting of rates has also helped those with adjustable rate mortgages as most ARMs reset to prime plus a margin which is determined during the negotiating process of obtaining a mortgage. That rates cuts save a homeowner facing their adjustment in their mortgage rate would save over $300 a month today compared to December 2007 on a $200,000 mortgage loan.

Submitted by admin 4/29/08