Las Vegas Mortgage Rates
What does it mean when the Fed cuts rates?
The Federal Reserve Board controls the federal funds rate. The Fed has the power to raise or lower the federal funds target rate and this can influence the market for shorter-term securities. The Fed funds rate is the rate banks charge other banks for overnight loans. This can stimulate the economy. A lower Fed Funds rate means that banks are more willing to borrow money to keep their reserves at the mandated level. Banks lend more, businesses expand, home loans are cheaper (primarily short-term mortgage loans), the housing market improves, and homeowners take out home equity loans (since the prime rate typically goes down).The Fed may raise the rate to keep inflation in check, to slow the economy or it may lower the rate to stimulate the economy. By cutting like they did today they are trying to stimulate the economy.
You should recognize that the Fed doesn’t have much control over long-term interest rates. This can be seen by the fact that the Fed raised the Fed funds rates for a long period of time and mortgage rates and long-term interest rates stayed about the same.
Long-term rates are market driven. The market is driven by inflation expectations, perceived changes in the economy, and the strength of the dollar (which can impact demand for our Treasury securities).
Mortgage rates have been moving lower as the stock market has been declining. This is because there has been a flight to quality. When the market does find a bottom you can expect that mortgage rates will move higher. Investors will move out of bonds and back into the stock market.
If you have any questions or comments please click on comments and let me know what you are thinking.
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