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October 28th, 2008

FOMC: Let Programs Work Before Another Rate Cut

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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.

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2 Responses to “FOMC: Let Programs Work Before Another Rate Cut”

  1. Rebecca Wilder Says: October 28th, 2008 at 4:54 pm

    Hi Tim,

    I agree with your VP – a sizable rate cut would only reduce the Fed’s flexibility going forward (not like they have a whole lot at this time). Their balance sheet was $1.8 trillion last week, mostly comprised of loans that the Fed has made to the banking sector. It’s rather out-of-control.

    Check out this website (Bubble Meter) – James writes a good article about Helicopter Ben: http://bubblemeter.blogspot.com/2008/10/helicopter-ben-makes-good-on-nickname.html

    Rebecca

  2. Tim Manni Says: October 29th, 2008 at 12:18 pm

    Rebecca,

    I checked out that site, the picture and the poem were too funny! We all got a good laugh out of it.

    As far as the rate cut goes, all we can do is sit back and hope that the rate cut will be what the market has anticipated so stocks can mirror yesterday’s finish.

    Thanks for comment, always good to hear from you,

    Tim

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About the HSH Blog

HSH.com's daily blog focuses on the latest developments in the mortgage and housing markets. Our mission is to relate how changes in mortgage rates and housing policy, as well as the latest financial news, impacts consumers, homebuyers and industry insiders alike. Our 30-plus years of experience in the mortgage industry gives us an edge as we break down the latest changes in an ever-changing market.

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Tim Manni

Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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