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Such Cutting Remarks

cut OK, the title is a little misleading. The cutting remarks I'm referring to aren't the ones that professional wrestlers hurl at one another before grappling on the WWE. I'm talking about the ones the Federal Reserve (more specifically, the FOMC) are in charge of implementing. Recently there have been some remarks that seem to indicate a darned-near 100% chance of at least a .25% rate cut, and a 50% shot of a half percent rate cut. That's great right? After 3 cuts in the past 3 FED meetings (totaling 1.00%), I've gotta say I'm a little concerned.

Here's why. Yes, rate cuts are good for our slowing economy. Cheaper money, means more spending. But FED rate cuts aren't always a good thing. First off, they usually force interest rates higher. Weird huh? Second, they can encourage inflation. Not good. I don't want to have a better rate on my equity line, but be paying $32 for a loaf of bread and $120,000 for my SUV that guzzles $12 a gallon gas.

So what's the FED to do? What should they do? Keep chopping away at the Fed Funds Rate and hope the tree doesn't fall on them? I'm sure Manatee County is the same as any other place, the average person would rather have money in their pocket now and worry about inflation later. But it still begs the question: To cut, or not to cut? What do you think?

Posted by Mike Tullio, Blue Skye Lending on 01/08/2008 11:17 AM

Comments (5)

interest, rates, the fed, mortgages, fnma, bond, loans, lender, florida, bradenton, resolution, price, economic, manatee county, fear, why

5 Comments on Such Cutting Remarks

great title and report from the FED, to cut or not to cut. They will cut and rates will go up!

01/08/2008 11:26 AM

by Matt Ratcliffe, REALTOR (Keller Williams Realty Brazos Valley)

Thanks for the comment Matt. I couldn't agree with you more. The Fed meets at the end of this month and I have a feeling they'll cut .50%. So much bad news coming out from builders, financial institutions, and the stock market. It will be hard for them to ignore and stay the course of reguation inflation. Glad I'm not the Fed!

01/08/2008 11:30 AM

by Mike Tullio, Blue Skye Lending

Good subject line Mike, I didn't know what to expect. The purpose of cutting interest rates is to increase liquidity in the market. Rate cuts take several weeks to flow through the system and really be seen.

The bigger worry is that the inflationary pressures will be present with or without a rate cut. Oil prices are not controlled by rate cuts and since oil is the primary inflationary pressure point the fed is caught between a rock and a hard place.

How does the fed go about easing credit in the face of inflationary pressures that rates don't control? This is an interesting and somewhat scary time.

01/08/2008 11:41 AM

by Kate Bourland; Redding Mortgage, Loss Mitigation, Money Merge Accounts (Windsor Capital, Dyer Beech & U First Financial)

Kate. Very insightful comments. It's not easy being the Fed. I like to use the shower handle metaphor. You crank the handle to the far left to get the water to come out hot faster, but there's always a delay, and then it comes out too hot, so you have to crank it to the cold side. Imagine doing this with a multi-trillion dollar economy. Wow. My guess is that the Fed will keep cutting. Sure, there are inflationary pressures, but without money, we're headed for a recession. Should be an interesting year.

01/08/2008 01:11 PM

by Mike Tullio, Blue Skye Lending

It seems that the FED will do whatever the stock market wants lately. I bet they cut rates at least 25 bps.

01/09/2008 12:26 PM

by Jason Wheeler (REI Capital Solutions Group)

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