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Fed Rate Cut Expected

By Michael Clarkson

Real Estate Agent with Snow Coast Real Estate

March 17, 2008 04:50 AM

Rate Cut Expected

Financial markets are pricing in an estimated drop in the Fed Funds Rate to 2% will be announced in the upcoming Fed Open Market Committee Meeting. The next meeting takes place March 18, 2008, with minutes - and the rate announcement - being released the second day of the meeting. So, expect some news on March 19, 2008, likely around lunchtime, Denver time. If the market is correct and the Fed drops the Fed Funds Rate to 2%, it will represent the lowest rate since November 10, 2004. The Fed Funds Rate is at a multi-year low of 3%, the lowest since May 3, 2005.

See the history of the Fed Funds Rate here: http://www.federalreserve.gov/fomc/fundsrate.htm

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Dwayne West

Atlanta Real Estate - Canton, GA

Canton Georgia Real Estate

I just hope this can be a positive thing for the markets and the economy. the dollar and inflation are beginning to worry people now because of the rate cuts.

Mar 17, 2008 05:12 AM

Michael Clarkson

Snow Coast Real Estate - Littleton, CO

That's true. I do believe there is that risk. However, the UK pursued a policy similar to this when they removed themselves from the EURO Exchange Rate Mechanism (ERM) in the early 90's. It resulted in a huge rebound in their economy and it had the effect of outsourcing economic flabbiness to other countries. That is largely what I would expect to see here.

The larger problem is that with housing being such a huge sector in the economy, the Fed cannot risk an implosion -- which it seems increasingly worried about. Were that to happen, inflation wouldn't be the worry. After all, you can't have economic expansion without capital markets. And, right now, the Fed is hoping to overstimulate to power out of this dive in the housing market.

Frankly, had they overseen the banking sector better in the first place - along with the Office of the Comptroller of the Currency - we wouldn't be in this mess.

In my humble opinion, the issues are:

The media overhyping the situation - 97% or better of mortgages are just fine.
The bankers having intricate derivative instruments that promulgate the problem to the point where purchasers of the mortgage backed securities have no idea how to value them. So, no one buys them in the secondary markets, which means: lack of liquidity. That's where we are today.

It's really sick, but that is the life with which we are dealing right now.

Michael

Mar 17, 2008 05:42 AM

Fed Rate Cut Expected

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Michael Clarkson

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