In three weeks, the Federal Open Market Committee will meet again and markets anticipate another cut to the Fed Funds Rate.
Based on data compiled by the Federal Reserve Bank of Cleveland at the close of business yesterday, traders put the probabilities of the Fed's next move at:
- 62 percent chance that the Fed Funds Rate falls to 2.000%
- 36 percent chance that the Fed Funds Rate falls to 1.750%
Currently, the Fed Funds Rate is 2.250%.
Cuts to the Fed Funds Rate are meant to stimulate the economy by lowering borrowing costs for banks, businesses, and consumers. When less money is spent on interest payments, more money is available for goods and services and that tends propels the economy forward.
And, because Prime Rate is tied to Fed Funds Rate, home equity lines of credit and credit cards grow "cheaper" when the FFR falls. That can makes financed home improvement projects a little less expensive.
Cuts to the Fed Funds Rate, however, do not equal cuts to mortgage rates.
Mortgage rates are based on the price of mortgage bonds and -- although it exerts an influence -- the Federal Reserve does not set the prices for mortgage bonds any more than it sets the price for other investments such as stocks or mutual funds.
Since September 2007, the Federal Reserve has lowered the Fed Funds Rate by 3 percent. Over the same period of time, conforming mortgage rates have been mostly unchanged.
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