Dennis' Mortgage Blog

FEDERAL RESERVE DROPS DISCOUNT RATE

The Fed dropped the Fed Funds rate to 0.25% today and indicated rates will remain low for quite some time.  Following a report that the Consumer Price Index fell by 1.7% for the month of November (20.4% annualized) they feel the economy can get weaker and that the threat of inflation has eased “appreciably.”  Interest rates climb when the threat of inflation looms and drop in the absence of inflation.

Typically when we get news of cuts by the Fed our mortgage rates spike in the short term, not today as all markets reacted very favorably to the announcement, stocks and bonds rallied after the news.

What does this mean to consumers?  Well if you have a Home Equity Line of Credit your Interest rate just dropped as the Prime Rate is at 3.25%.  This is the lowest Prime has been since October 14, 1955 when it climbed to 3.5%--at the time the highest it has been since the inception of the Prime Rate in 1947.  Our current rate takes us well below our previous recent low of 4.00% in June 2003, which was the last of the post-9/11 rate cuts.

My advice to those with Home Equity Lines of Credit is to make dents into the principal now while the interest is low, what goes down must go up in economics and markets—It was only two and a half years ago that Prime was over 8%.

More on my Friday Rate and Market Update.  Enjoy the rest of the week!

Dennis