New Jobless claims sparks debate about October Rate Cut. How will Mortgage Rates respond

By Michael Mapes, The Responsible Mortgage Lender.Com

New Jobless claims for the week ending Oct 19 was up 27,000.  Most economist were expecting a number of down 2,000.  The surprise in this result has once again spurred comment that the Federal Reserve will once again have to cut key interest rates by .25bps at the October 31st meeting.

The Federal Reserve Chairman Ben Bernanke in Testimony on Capital Hill recently told law makers that "The Federal Reserve is prepared to step in and aid the economy with whatever means it has".  Most market analysts view this statement as a sign that the Federal Reserve will indeed cut key rates again this month.  The latest cut of 50 bps in the September meeting was designed to inject liquidity and confidence into the trouble financial sector, the Fed minutes revealed.  While some members of the Board of Governors resisted the .50bps move, Chairman Bernanke felt that ailing the struggling housing market was more important this time around.

As more and more economic data comes in showing a slowing economy, the one sector that has remained strong is employment and income growth.  If the unemployment numbers from August 2007 and the recent new job less claims for October are correct then signs of slowing consumer spending are sure to follow.  In any economic system the end user or consumer of a product or service is the fundation of economic growth.  As more and more people feel uncertain about their jobs then consumers will save more and spend less.  Not a promising senerio as we head into the holiday shopping season.

Most economist agree that the Federal Reserve will slash key interest rates by .25 bps this October meeting.  Mortgage Interest Rates are more tied to the 10 year treasury note then what the Federal Reserve actions are.  However, given the current state of the economy and mortgage market in general.  A postive move by the Federal Reserve could spark lower mortgage rates heading into 2008.

Michael Mapes can be reached for comment at 757.599.1810 ext 225 or on the web at http://www.thereponsiblemortgagelender.com/