Here is an email from an ABN-AMRO AE that clarifies the cut today. Thought I would share as it is good info:


"Today (08/17/2007), in an unprecedented move, the Federal Reserve made an
emergency Discount Rate cut of .50% (1/2 percent) in order to attempt to
avert further liquidity crisis (cash shortage) in the banking industry.

This does not mean that mortgage rates have been cut.

And this is not the same thing as a Fed Funds rate cut. There is an
important difference.

In order to understand what this means, you need to know a few basic
definitions:

The Federal Reserve banks' primary responsibility is to ensure that
fluctuations in the demand for cash does not disrupt the banking
industry

Fed Discount Rate: The interest rate at which eligible banks may
borrow funds, usually for short periods, directly from a Federal
Reserve Bank - this is to meet temporary shortages of liquidity
caused by internal or external disruptions (also known as the
Discount Window)

The Discount Rate has very little to do with how retail interest rates
ultimately affect consumers of loans and credit, but rather primarily
affects the internal stability of the banking industry

Fed Funds Rate: The interest rate at which non-Federal Reserve banks
lends immediately available funds to other non-Federal Reserve banks
overnight (Also known as the Overnight Lending Rate)

The Fed Funds rate is the one that is adjusted to increase growth or
moderate inflation of our overall economy. This usually has a direct effect
on the 10 Year Treasury Bill, which is the primary driver of mortgage
rates. A Fed Funds rate change has a significant impact on retail interest
rates.

In summary, it would be a mistake to assume that because the Fed Discount
Rate has been lowered to help the banks avoid a cash crunch meltdown, that
mortgage rates will either drop or go up. This is because the primary Fed
Funds Rate has not been revised.

In fact, it is just as likely that as the stock market recovers, mortgage
rates are more likely to go up than down! This is because bonds will get
sold, which raises the yields and therefore mortgage rates.

Any impact of this Discount Rate cut remains to be seen and will only play
out in a macro-economic, long term way via restored confidence and
liquidity of the banking industry.

I hope this helps you to further communicate with your borrowers and secure
your relationship as an informed mortgage professional."

My take;

Wall Street knew that the Fed rate cut was coming yesterday before trading ended.  How else can anyone explain the miraculous recovery that took place in the last hour of trading yesterday?

We will continue to see the Fed cut rates in measured increments over the next few months.  The key reason for these cuts will be to stabilize Wall Street so that institutional investors can continue to dump their financial sector stocks in hopes that they can unload them before the next batch of bad news (truth) makes its way into the news.

Unless we see cuts totalling 2%+ , I don't see any real relief coming.  And don't think consumers will see any major benefit from these cuts, at least not on first mortgage loans.  The banks will borrow at the lower rates and not pass the discount on to the consumers; they'll keep the difference.

Borrowers will see an immediate decrease in their adjustable rate 2nd mortgages as well as their credit cards, which mostly track movements in the prime rate.

Bernanke continues to say that inflation is the primary concern.  Defaults and foreclosures are going to bring far more serious consequences than inflation will.

Can anyone honestly say that people losing everything, every bit of their net worth is not more serious than someone paying $8 more for flat screen tv or .35 cents more for a loaf of bread?