Feds Announce Interest Rate Cut

Feds Announces Interest Rate Cut

www.cnn.com

The Federal Reserve cuts by one-half percent the federal funds rate, a rate that heavily impacts how much interest consumers pay on debts including credit cards and auto loans. The rate cut could help some beleaguered home borrowers who are set to see monthly payments rise later this year.

(visit the link for the full news article)



[edit on 18-9-2007 by elevatedone]

[edit on 18-9-2007 by elevatedone]

Well, while some may think it's a little late, better late than never. However will half a percent make that much difference?

www.cnn.com
(visit the link for the full news article)

reply to post by elevatedone
Very rare that they would go with half a percent vs. one quarter. Possibly then more cuts will come next month. The concern was with inflation but IMHO most of that was increased fuel/ energy prices and their trickle down effects. The subprime mortage people need cheaper interest to keep their noses above water.

We know a quarter percent was already priced into the markets and some even said that a half percent was priced-in so it may not make a lot of difference to the stock market but it will on the economy.

The remedy needed for the economy at the moment is tough love and a cleansing of bad credit. Bailing out the lenders and overextended borrowers is not the way to go.

Going for a whole half percent instead of a quarter smacks of desperation and panic on the part of the fed as well.

Not a good sign.

You can kiss the dollar goodbye as it sinks under a tsunami of inflationary pressures.
.

stocks rise, dollar falls and I get richer
I need a t-shirt that says "I survived the Feds"

while this rate cut may serve as a temporary bailout for some, I fear that the Feds are turning a blind eye to the dying dollar. note.. gold, oil and foreign currencies are all up.

That half of a percent goes a long way when you start calculating the interest. This will help some people avoid foreclosure or bankruptcy.

When it comes to the Fed and Interest, I must admit, I have no clue. I don't play the stocks etc.

I work, pay my taxes, mortgage and bills and try to have enough left over for a little entertainment from time to time.

So, I look forward to everyone's participation in this thread and maybe I can learn more about how this "cut" will affect me?

So, I look forward to everyone's participation in this thread and maybe I can learn more about how this "cut" will affect me?

reply to post by elevatedone

Hi Elevated, Mainly effects interest rates indirectly. The FMOC (Fed) sets short term rates. But there is a trickle down effect on mortgage rates and this could mean several hundred a month for some (like me) since I have several mortgages.

That's it. The dollar is falling like a rock. And we've not seen the worst yet. Just watch the prices of everything imported rise... wal-mart, oil, ect...

Yeah, help the market... let everyone else pay for the inflation. The FED is certainly killing the dollar, but eh, what can they do, the US economy is going to hell.

Now that the canadian dollar is at 98.6, the parity will happen at the next cut from the FED, before the end of the year. North American Union, here we are.

Also, good news, oil at 82$!

And Bush will soon have to extend the debt even more... also, the US in the near future won't be able to import anymore, and the industrial base is gone. Probably that in the future that China will become the US (importing) and the US will become China (cheap labor, exporting)... that's the american dream of being used.

[edit on 18-9-2007 by Vitchilo]

Today the FED panicked. I just can't say this enough. Bad loans should be allowed to fail. Companies should be allowed to fail. Home owners, who should be renting, do not need to be saved by the FED. Today the FED through the problem on the problem, attempting to use it as a solution. The problem was cheap money, through low interest rates, to begin with.
The whole credit/liquidity crisis is a direct result from low interest rates. With unlimited credit being afforded to anyone, and I mean anyone, the direct result will always be excess credit by the people who can least afford to have it. I am not just talking about the individual, but the hedge fund managers and private equity themselves. Wall Street spoke up and said, hey....we got ourselves in a bit of a pickle here. The FED listened and is now buying time for a few of those hdege fund managers that either bet the wrong way on credit spreads or the private equity shops that were buying copanies with money they could no longer afford to raise. Banks were being forced to make concessions on loans to get the deals done, effecting their bottom lines. This on top of the mortgage issues.....not good for the banking markets in general.

I see this rate cut as the first step of a multi-step bailout of the savings & loans companies that were greedy in their ways of selling and attracting mrotgage buyers. I say it again.....you can not fix the problem by reliving what got you there in the first place. Thats like saying, in the long run you can always spend yourself out of a deficit. it is possible to spend yourself out of a deficit, but a lot of things must take palce for the perfect scenario to take place. This move just prolongs the inevitable. Certain mortgage banking companies will still go out of business, people will still lose their homes, the markets will eventually go down. I remain ready to re-enter the stock markets only after the selling pressure is gone. This rally is just short covering, painful, but short covering.

Once the markets cleanse themselves and we hav ea capitulation day, with the DOW around 12,250 and the S&P hits around 1325, I will put my money back in the market. Until then, its just churn, churn, churn and trade, trade, trade. You generate fees that way. Stop making you brokers rich!!!!!!!!

Buy low, sell high.

By the way. A total 1.00 cut in the discount rate in less than 30 days. The FED for years has been talking about containing inflation. YOU DON"T GET MORE INFLATIONARY THAN PUMPING MONEY DRIECTLY INTO THE SYSTEM. In a few months we will be once again worrying about run away inflation, this time brought on by bigher prices, more money in the system and a falling dollar. Our companies will make plenty of money on the bottom line selling goods over see and coverting that back into US$, but here at home....expect thngs to get tougher to buy your every day goods.

THE FED PANICKED!!!!!!!!!!!!

excellent post wallstrader, I agree with most of your post except about getting back into the stock markets, I don't trade stocks.

The Fed's over did it. They're just postponing the inevitable and bad financial decisions should not be bailed out. If they really felt they had to cut rates, they should have eased into more slowly, do 25 pt cut today which the market had already priced in and allow it deal with the results.

curious as to your thoughts regarding the value of the dollar and how far do you think the Feds will allow to fall before intervening again.

The yield curve inverted well over a year ago, presaging all this weakness. I posted it on "Other Current Events" but a staff member went out of his way to u2u me to tell me that it was far, far from ATS material.

Anyway, seems like it is ATS material now:

U.S. Interest Rate Yield Curve Inverts

Here's a graphic:



[edit on 9/18/2007 by djohnsto77]

[edit on 9/18/2007 by djohnsto77]

Many of the problems in the real estate market were caused by unscrupulous lending practices and appraisers artificially inflating values so lenders can put these deals together. Now you will see many homeowners in debt to their eyeballs try to jump on lower rates to consolidate mortgages and other debt. The problem is their properties are now worth far less than the inflated values that were thrown around when the market was healthy and they sunk themselves into debt.

If lenders and appraisers continue to inflate values in order to put deals together, it will be even more criminal than it was the first time around. There will not be market data available to support the values needed to consolidate many homeowners' debts, and only the manipulation of sales data by pressured appraisers will make much of this consolidation under lower rates possible.

I truly hope that tougher underwriting guidelines will be in place or the real estate market could spiral even more out of control. Lenders need to make their mortgage decisions based on realistic data, or there's no point in cutting rates as a way to decrease foreclosure rates and try to jump start the housing market.

If that make sense in the roundabout way I wrote it. I could explain it better, but I have to go appraise a property.

As to the falling dollar, up til now it has been very beneficial to American Companies that produce products for sale over seas. Benficiaries of this have been, John Deere &Co. Ingersol-Rand, Cumins Engines, Untied Technologies, General Electric....get the picture. Manufacturing Companies, the old smoke stacks of the world. When people are building infrastructure, which has been happening around the world at a record pace, the old reliable builders of goods are good safe bets. The lower the US$, the cheaper our goods are over seas. When companies translate those sales in foreign currencies back into US currencies, they also capture a currency gain.

These stocks have also been some of the better performing stocks over the past 5 years, those and defense companies, and oil companies. With lower rates and the falling dollar, i would begin to look toward technology companies, which usually have higher profit margins. When money is real cheap (through loans) people spend on the new gadgets.

As always, i donot recommend buying, selling, shorting or making love to stocks in any way, shape or form.

Originally posted by Musky
Lenders need to make their mortgage decisions based on realistic data, or there's no point in cutting rates as a way to decrease foreclosure rates and try to jump start the housing market.

I think your mistaken, when you say the FED is cutting rates to jump start a housing market. THEY ARE TRYING TO PREVENT THE COLLAPSE OF ONE.

the .5% cut was needed...
they don't figure it as a fix or remedy for the mortgage or credit markets,
they see it as a interim or probationary period, and expect a sizeable section of the overextended mortgagers and creditors to get foreclosed
or default in the long run...

this action by the Fed, just allows 10s of thousands of homeowners
a chance to salvage their investments...(many by accepting a refinancing terms...which most likely will cost them 'points'- which means 'money')

and, to clarify a little... the housing investment was not the issue being addressed - -
the Fed is manipulating the housing/mortgage industry economies so that a bunch of mortgage lenders go belly up
or that multiple thousands of homeowners(in default) don't send the larger credit economy into a recession by not continuing their spending practices.
the Fed Reserve has given the US economy a breathing spell of 12-18 weeks, to correct, readjust- for those that care to salvage their credit & mortgages///
and 12-18 weeks minimum for the excesses to be wrung out, and only about 10% of all those sub-prime & adjustable rates & Jumbos should go
into denial or foreclosure, over a protracted time ~~~
giving all the speculators a 'positive' outlook for the immediate future.

they did a masterful ploy of 'keeping the ball rolling'
instead of solving anything !!

Originally posted by traderonwallst
I think your mistaken, when you say the FED is cutting rates to jump start a housing market. THEY ARE TRYING TO PREVENT THE COLLAPSE OF ONE.

Ha. You're probably right. I have a tendency to think locally about the real estate market because the local market affects my income. Where I am the market is not in danger of collapse. Foreclosures are up, but not crazy. Lots of available inventory, however, especially new construction. A jump start will help. That being said, a total collapse is possible due to conditions around the country.

I think that the interest rates is no only to save the housing but the credit also, this will help with the uncoming holiday spending.

The Fed only sets the shortest of short term lending rates (overnight inter-bank target rate)...on the other end of the scale, long term lending rates, many 30yr fixed rate mortgages for example, are set in the bond market. Look to the benchmark 10yr bond to see where fixed mortgage rates will go. If yields go up, interest rates usually follow. When inflationary expectations are high, the fixed income market tends to view rate cuts as hostile to long term savers...foreign money exits long term treasuries, and yields rise. This is the gamble the Fed was forced to take. I'm sure there was some political pressure as well...just keep those markets floating until November 08 thank you very much!

With most anticipating a .25 cut yesterday (I was), the -50/50 made it clear to the world that the Fed is CONCERNED...but not about their anti-inflation mandate...the Dollar be damned! Yesterdays Treasury data showed foreign support of long term securities at it's lowest level in 9 months.