Feds Lower Fed Fund Rate – Prime To Follow

Today the Federal Open Market Committee (FOMC) adjourned their two day meeting with a reduction in the Fed Fund rate.  The prime interest rate, which is the primary factor that determines home equity loans, consumer credit cards, etc will likely follow tomorrow coming down to 3.25%.

Thus far in 2008 we've seen the prime rate drop several times, unfortunately each resulting in slightly higher mortgage rates.  The trend for rates to increase is usually temporary, but it's important to note the reduction in the prime interest rate does not mean a reduction in the 30 year fixed mortgage rate. However, in today's economic environment, it is very difficult to determine what the "normal" reaction is to anything.  This afternoon mortgage rates held steady at morning levels and the bond market finished in positive territory which may indicate lower rates on Wednesday.

The announcement by the FOMC did include the key statement that it will use "all available tools" to generate a resumption in growth.  This positive statement is likely the factor driving the bond market to finish in positive territory.

With so many variables in the rate envrionment today, it is most important to be prepared.  As I wrote last week, now is the time to make a move if you're thinking you need to refinance or if you're shopping for a loan.  Don't forget, opportunities are never lost…someone will take the ones you miss!