What Happens When The Fed Cuts Rates?
Keep in mind one thing, the financial industry is in disaray as we speak! All the banks left have cut their overhead to the bare minimum. So, last week when Benanke gave a us a suprise 3/4 of a point drop in Fed Funds, the Stock market got excited. And then the silogism is the best bet. And it is:
Fed Fund Rates get cut.
- Stock market rallies up!
- Bonds react to the stock market and go down!
- Mortgage Rate go up!
And that's what happened.
Well, yesterday was practically one for the record books, with two-day volatility not seen since the late 1980's. In spite of yesterday's move, the market is pricing in further cuts at the meeting Tuesday & Wednesday. Rates have dropped since the beginning of 2008, and looked absolutely fantastic Tuesday and first thing yesterday morning. But then the tide turned, impacting those who waited to lock for whatever reason. The stock market underwent a 600 point swing, mortgage securities worsened in price between 1 and 2 points, depending on the coupon. Franklin American sent out 6 different rate sheets, Taylor Bean sent out 4. Chase worsened their rates by .375%. The speed of changes were lightning fast, and lenders across the nation underwent numerous changes, with some investors basically pricing themselves out of the market in mortgages regardless of the actual mortgage-backed securities market. This morning after a basically unchanged Jobless Claims number the 10-yr stands at 3.00% and mortgage prices have stabilized.
;)
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