the final cut?
Like bad movie sequels, all things must come to an end. For inflation hawks, the end of the seemingly continuous rate cuts can’t come soon enough! Well, the end may indeed be here. Hinting this may be it for rate cuts, Bernanke and the Feds cut the Federal Funds rate by .25% this afternoon (lowering the rate to 2% and brings prime rate down to 5%). This is the seventh cut by the Feds since September.
The first “Pirates” movie was amazing! The sequel, unnecessary. The third one, ridiculous!
As much as I love “Captain Jack,” I hope this franchise is finished!
How will this affect rates? The previous six rate cuts caused the bond market to lose 78 or more basis points in the next few days following the cut. The drop in bond prices forced mortgage rates up. However, this time things could be different.
If this is indeed the last cut, it may actually strengthen the bond market, and the initial market reaction supports this theory. Since the rate cut announcement this afternoon, bonds rallied from a deficit to finish over 40 points ahead on the day while stocks lost over 100 points to finish in the red. This caused mortgage rates to improve over the course of the day.
Why the change for the bond market? The previous rate cuts also came with multiple hints of future rate cuts. Continued speculation of future cuts — the fire that stokes inflation – caused bonds to react negatively. Since the Feds statement today said this is it, bonds are reacting more positively knowing that Feds are done with cuts, which will help tame inflation. It will be interesting to see how this plays out the rest of the week, especially with the Feds favorite economic report for reading inflation being released tomorrow.
Clay Jeffreys is a Mortgage Consultant with Hillside Lending, LLC and writer for “Blog Pertaining to the Acquisition of a Mortgage to Purchase a Domicile.” Hillside Lending seeks to provide mortgage brokerage services with the highest standards of service, care, honesty, integrity and value; concentrating on owner-occupied, residential financing. For more information about available programs and interest rates, please visit www.hillsidelending.com.
