Fed Cuts Rate 1/2 Point To 3%

The Federal Reserve Open Market Committee voted to cut interest rates by 1/2 point today, stating that the financial markets remain “in considerable stress.”

Financial markets remain under considerable stress, and credit has tightened further for some businesses and households. Moreover, recent information indicates a deepening of the housing contraction as well as some softening in labor markets.

The Committee expects inflation to moderate in coming quarters, but it will be necessary to continue to monitor inflation developments carefully.

Today’s policy action, combined with those taken earlier, should help to promote moderate growth over time and to mitigate the risks to economic activity. However, downside risks to growth remain. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.

Federal Open Market Committee Statement [FED]


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  1. headon says:

    hmmm 3% shouldn’t credit cards rates come down? I don’t see that happening, someone please explain.

  2. …further discouraging those lower income groups from banking that “stimulus” check. “Spend like the patriotic b!tches you are.” — GWB

  3. darkened says:

    I want in once we get to the negative interest and they pay me to borrow their imaginary money!

  4. Xerloq says:

    Hopefully this will stick around till July for student loans.

  5. MercuryPDX says:

    I asked this 1/2 a point earlier too, but how about trying to re-fi now? Last time it hit “lowest it has ever been”, I shaved a full point of my mortgage.

  6. @mercurypdx: If you do, make sure its in a home where you plan on sticking around to see the benefit of a re-fi. Keep in mind that there may be thousands in closing costs and you will be tempted to lengthen the term of your loan. Don’t do that.

  7. unklegwar says:

    Our economic growth has been based on borrowed money for years, and they want to keep encouraging that. AS my CD and savings rates drop, my ability to earn by saving drops, with makes is more likely I’ll have to borrow money….etc etc etc. This certainly changes the balance of my finances. My car now costs more to finance than I earn in interest. I’ve lost about $750/year just this past week. How is that good, again?

    The damn fed thinks the prime rate is a damn Volume dial for the economy. Turn it up, turn it down.

  8. solidstate42 says:

    I am both happy and sad about the rate cut. My parents’ HELOC rate will go down (prime + margin), but the rate on my money market will go down as well. I guess we can’t have it all.

  9. algormortis says:

    Both Wachovia and Digital Federal Credit Union adjust my prime+whatever% card monthly.

    I don’t know why other companies don’t do that, but there’s likely a rate floor. I’d be paying Wachovia 8.9% and DCU 9.9%…if i ever carried balances.

  10. LorneReams says:

    @headon: They do come down unless they are tied to another index like LIBOR.

  11. sethom says:

    Hello inflation :(

  12. cmdr.sass says:

    So much for my high interest savings. Thanks Fed!

  13. ekthesy says:

    @Meg Marco:

    So is that a “economy is going over the falls” photo or an “economy is running aground” photo?

    Either would be accurate; the latter far more so. I also suggest “economy is making me nauseous.”

  14. MercuryPDX says:

    @AngrySicilian: Yeah, I am not going anywhere until I “own” this house ($90K from now) and want/need to upgrade; in other words a long ass time.

    My last refi was about 4 or 5 years ago and it affected the rate only (not the length), but neglected to roll the higher interest 2nd (HELOC) into my first.

    The thought of having a consolidated “clean slate” at a decent rate is very attractive to me.

  15. Anks329 says:

    well… there goes my high rate savings account…

  16. enm4r says:

    @unklegwar: Obviously you have a head on your shoulders. The falling rate, as you said, just gives us less interest to save. Easier to pay off debt, harder to save…apparently when the country collectively asks whether or not it makes sense to have a negative savings rate, the Fed convinces us with lower rates.

    What happened to the Fed of yesteryear (or 20) who’s sole intention was to keep the dollar strong? Where’d they go?

  17. darkened says:

    @enm4r: This is what you get when you have a private entity of bankers complete control over your country’s money system.

  18. crazypants says:

    This week’s rate: (according to Bankrate.com)
    5.57% 30 year fixed
    5.11% 15 year fixed
    5.35% 5 Year ARM

    Also cut from Bankrate.com:

    “Mortgage rates have plunged to levels last seen in the refinance boomlet of 2004. Homeowners are getting the message, contacting lenders and brokers in big numbers.”

  19. crazypants says:

    Any idea how long a rate cut like this will typically last? Like are these pretty much set into stone for the next 6 months or could they spike up tomorrow?

  20. Tracy Ham and Eggs as played by Walter Mondale says:

    @mercurypdx: Call your lender. Tell them you are thinking of refinancing and ask if they can give you a “rate adjustment”. A lot of big lenders will do so, assuming youve been with them a year and havent missed a payment. Fees for something like that may be a couple hundred for paperword/processing (BoA used to be $195). Its like an FHA streamline without the hassle.

    If you want to combine loans it will take a little more work/cost, so they wont just lower the rate, but still call your current lender. If they wont (assuming your income and credit is good) go to a local bank. Do not pay more then 1% in total origination points, and refuse to pay any “yield spread” or “brokers fees” on your loan. After you get that quote call back your original lender and ask them to beat it (they will if they can).

  21. hypnotik_jello says:

    @crazypants: with the economy in dire straights, I wouldn’t think a rate isn’t coming up in the near future until the pressures of inflation get so bad that the fed is forced to raise rates. The rate didn’t do much to buoy the market though.

  22. hypnotik_jello says:

    @hypnotik_jello: oops, I meant “I wouldn’t think a rate cut is coming up”

  23. Dan25 says:

    @headon: i lowered my CC rate to 1.9% and the rate on my variable personal line of credit drop to 7.5%.

  24. Ozyman says:

    @darkened: If that does happen it will because the value of money is deflating, so they will be paying you to borrow money, because the money of the future (which you will be paying back) will be worth more (in real value) than the money of today (which you are borrowing).

  25. Slothrob says:

    I feel like I’m being punished for not having debt and keeping money in a savings account. My ING account used to pay 4.9%, and now it’s down to 3%. It’s like the government is witholding my money so they can give a little more to rich investors.

  26. warf0x0r says:

    I’m hoping student loans will adjust accordingly on July 1.

  27. Morgan says:

    @slothrob: Any investments based off of the fed rate go down too, though.

    Aren’t they concerned with the falling value of the dollar? Traditionally, one of the things that keeps the value of the dollar high is high interest rates driving foreign investment into the country. This is just going to make that worse.

    I’m not bitter about my high interest savings account rate dropping or anything…

  28. chrisdag says:

    I’m in the “yay!” camp on this one …

    I refinanced today for 2 whole percentage points lower than the original loan terms. My original loan was at a pretty high rate because the bank classified the house as an “investment property” due to the fact I did not live there full-time. Investment properties have higher risks associated so they dinged me for a fairly expensive loan.

    The coolest thing? Today I converted a 30-year fixed mortgage into a 15 year fixed mortgage and thanks to the much lower interest rate the monthly payments are $150 less than the original loan terms.

    If I keep paying the monthly amount I’ve already been paying my house will be paid off in 11 years instead of the year 2036 which is when the original 30 year loan would have ended.

    I’m stunned. I’m debt free now except for this mortgage and seeing the numbers work out such that the mortgage may go away in 11 years is awesome.

    Have not fully done the math yet but its likely that I saved five-figure (tens of thousands of dollars) sums by doing the refinance today. Much of the savings comes from being able to turn a 30 year loan into a 15 year loan.

  29. holocron says:

    @warf0x0r: Depends on when your loans originated. More recent student loans do not adjust. Per recent legislation.

  30. Tracy Ham and Eggs as played by Walter Mondale says:

    @chrisdag: Rough estimate if you just pay the minimum balance

    Payment x 15 x 12 + (150 x 13 x 12) (Im assuming 28 years were left on the 30 based on your comments.

    Payment x 180 + 23400
    So if your original payment was $2000 you are saving $383400 (and thats not including any return on investment you may get from putting the savings into the bank.) put the monthly savings into a minimum bank account or your 401k and you will have banked an extra half million on the deal.

    I love doing those numbers for people.

  31. stinerman says:

    Good point.

    My fiancee has already consolidated her student loan debt. Do you (or anyone else) know if it is likely she could get a better rate by going to a different lender for a refi?

  32. MercuryPDX says:

    @Tracy Ham and Eggs as played by Walter Mondale: Yay! You rock enough to be stalke…errr followed :)

  33. forgottenpassword says:

    YAY! Lets reward people who are foolish enough to be in debt! While we punish those smart enough to not be & actually save their money! :(

  34. swalve says:

    @headon: Two different rates.

    Banks are required, at close of business each day, to have a certain amount of cash “in reserve”, available to be withdrawn by customers. This is called fractional reserve banking. When you sign up to be a bank, you agree to abide by this. So suppose at the end of business, you don’t have enough money. Oh noes! So, you borrow the money you need to balance the books from your local federal reserve bank so you aren’t in violation. This rate we are talking about is the rate at which the banks borrow this money.

    This is used by the Fed to siphon money off of the economy, or inject money into it. If this rate is lower than inflation (among other things), it adds money (effectively). If it’s higher, it subtracts. This is the supply of money, just like that old supply and demand thing.

    It affects other rates, but not directly. If overnight rates are high, money is expensive and the banks need to charge more to make a profit. If it’s low, money is cheap and banks compete to loan out money at as high a rate they can get, so they can make money.

    Lesson- much adieu about nothing, and banks are for-profit.

  35. pj1280 says:

    @crazypants: I think the 3% rate is only a promotional “teaser” rate… I think it’s only good for the first 3 billing cycles, then it shoots up to 17.9%. But remember, if you miss any of your monthly minimum payments, you forfeit the promotional rate.

  36. synergy says:

    Yeah I have an HSBC account and it’s free-falling like everyone else. Ugh. One more month and I will be credit card debt free for the first time in 14 years. With the economy going in the toilet, I’d as soon not give more of my money to the damn banks.

  37. Akamaru says:

    This is ridiculous. A 150BP drop in 3 months. Before the 25BP drop the Fed acted like the rumors of a 50BP drop were ridiculous and overboard. Now, 125BP later, inflation is even more of a bigger worry than it was during the 25BP cut.

    I have no debt and I save/ spend what I make. Why must I be punished with a bad stock market and savings accounts that don’t even keep my head above the inflation waters?

    This is just a pathetic attempt to strong arm people into spending their money now, or face the pain of currency depreciation.

    Thanks guys, hurry up and have China sign my tax rebate check and lets get this spending party started.

  38. FLConsumer says:

    @unklegwar: Remember, the large corporations don’t make money if you’re saving yours.

    @synergy: I tip my hat to you sir. Never been in debt myself, but having worked with many who are, I’m impressed at your commitment and accomplishment.

  39. Erwos says:

    @enm4r: Fighting inflation has always been the Fed’s number one concern, at least since Volker. Keeping the dollar strong is not really an issue that they care much about.

  40. Mr. Gunn says:

    forgottenpassword: Well, there’s no point punishing the people that are already in debt, because that will just make things worse in the overall economy. Having money in the bank and no debt means you’re still better off than people in debt.

    Rate cuts I understand, though it seems like they might want to give it a little time for things to work before cutting again. Borrowing from China to give people money to spend on Chinese plastic crap, I don’t.