The Fed Drops Interest Rates… How Does That Affect You?
The Federal Reserve dropped a key interest rate on Tuesday by ½ percent from 5.25% to 4.75%, which is the rate that banks use to determine the prime rate. This is used by many banks to determine auto loan rates, credit card rates and home equity line of credit rates. Shorter term mortgage products such as Adjustable Rate Mortgages, commonly referred to as ARM’s, can also be affected by the lowering of this key interest rate and we could see a downward trend in these products due to the Federal Reserve decision.
Why are the 30-yr fixed mortgage rates not going down immediately? The reason is because long term interest rates have actually been moving down over the last couple of weeks, partly due to anticipation of the Fed Rate reduction. Once the Fed actually lowers rates, investors, because of increased “confidence” in the stock market take money out of bonds and put it into stocks, which could actually raise long term (ie. 30 yr. fixed rates).
When investors become confident in the stock market, everyone puts their money into businesses hoping to get a piece of the profits. The good thing in the long term is that if people are more confident in the overall economy, they spend money instead of save it, which means businesses do well and hopefully pay their employees (all of us) more money and then the employees buy more “stuff”, etc.
E-mail Troy Marsh or call him at 614-750-2144