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Does The Federal Reserve Cut Rates Again?
December 7, 2007
The Federal Reserve Open Market Committee (FOMC), led by Chairman Ben Bernanke, meets next Tuesday. As always, they will discuss the economy and then decide what, if anything, they should do with interest rates. The markets have priced in a rate cut of 0.25% and that seems to be the consensus. A survey of economists showed that an overwhelming majority of respondents felt we will get the 1/4 point decrease.
The good news is that those of us with Home Equity Lines of Credit (HELOC) will see a benfit in the immediate future because a Fed rate cut almost always translates into a corresponding reduction in the Prime rate.
The bad news, if there is any, would be in the Fed's policy statement. In essence the minutes of the meeting, the policy statement tells the markets what the Fed is thinking. The concern will be that if they continue to bang the inflation drum, we may see the markets remain cautious, thinking this may be the last of the rate cuts. In my mind, inflation is relatively benign, except for food and especially energy.
SHOULD I LOCK OR FLOAT?
A 30 year fixed mortgage between 6.0% and 6.5% is still a great rate. I do believe, however, that the days of 30 year fixed rates at 5.00% may be a thing of the past. Unless you are incredibly comfortable with interest rate risk, lock your rate. Your degree of happiness at saving an 1/8 of a percent will be far outweighed by your degree of unhappiness if you lose that 1/8 of a percent!
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