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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!

Brett Wolf
Loan Officer

How well do we know the Fed?
September 18, 2007
Well, today may seem like judgement day for all of the lenders and borrowers that are sitting with loans in trouble. If the Federal Open Market Committee (FOMC or Fed) cuts the Fed Funds rate (the rate that banks charge each other for overnight loans) by .50%, many will see that as an effort by the Fed to bail out those who have made bad mortgage decisions. On the other hand, this should also drop the Prime Rate by .50%, making those of us with Home Equity Loans a little more comfortable.

A .25% rate cut would seem to be more in line with Fed Chairman Bernanke's liking. He is an inflation hawk and he believes that inflation is still a real concern. This morning's PPI (Producer Price Index) number dropped more than anticipated, making some think that inflation is no longer an issue. This was due to the drop in August of food and energy costs. It is believed that the Fed will ignore this number due to the fact that energy costs have risen since the data was compiled.

Although a .50% rate cut would please me the most, I personally believe that the cut will be .25%, although I won't be too surprised it Bernanke chooses to stand pat.

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% are 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!

Brett Wolf
Loan Officer

The Federal Reserve and their Policy Statement
May 7, 2007
The Federal Reserve Open Market Committee (FOMC) meets this week and the consensus opinion is that they will leave short term interest rates unchanged. The great unknown is what verbiage they will place in their policy statement. Recently they have been very firm with their stance that inflation is still running a little higher than their target rate of 1.0% to 2.0%. With the Unemployment Rate increasing to 4.5% and a paltry 88,000 new jobs being created in April, some economists believe that we will see inflation continue to drop toward the Fed's target rate. If so, a rate cut might be in the cards.

There is currently a great deal of uncertainty in the market. A 6.125% 30 year fixed mortgage is still great. I also believe that the days of 30 year fixed rates at 5.00% are 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 less than your degree of unhappiness if you lose that 1/8 of a percent!

Brett Wolf
Loan Officer





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