FOMC: Let Programs Work Before Another Rate Cutby Tim Manni
Ask yourself this: “What is the benefit of a more sizable rate cut in this current environment?” asked HSH Vice President Keith Gumbinger. Within the last couple of weeks the Fed has implemented several programs to jump start the natural flow of things, including an emergency rate cut. We think that the Fed needs to give their programs more time to work before they use up the last of their little-remaining ammunition to battle market conditions.
The Federal Open Market Committee began a meeting today that carries over into tomorrow when Fed officials in charge of setting monetary policy will decide whether or not to trim the already slim Fed Funds rate.
In terms of predicting how much of a percent the Fed will cut from the Fed Funds rate (1.5%) is hard to say. Our prediction is that the FOMC will cut as little as possible — most likely .25%-.50%. “The last thing the Fed wants to do is risk disappointing the market,” said Gumbinger. “Yet, it’s likely that the market is going to be disappointed no matter what the Fed does.”
The Fed must consider just how much of an impact a sizable cut to the Fed Funds rate will make in the current market. “For most products, it will mean lttle; rates for some Home Equity Lines are already at ‘floors’ after the last move, as are certain credit cards,” said Gumbinger. Regular readers know that Fed moves have little effect when it comes to mortgage rates, especially fixed rates.