The Fed has already shown on a number of occasions that they can control short term interest rates. The Fed cut its key funds rate to an all-time low of 1% in October in response to deterioration in the global financial system. Rate cuts tend to drive up inflation, but falling prices have given the Federal Reserve more wiggle room to lower interest rates. Core inflation is now at its lowest point since October 2007, according to a recent Department of Labor report. People think that when the "Fed cuts rates" that long term mortgage rates are also cut. The federal funds rate is the interest rate at which a depository institution lends immediately available funds (balances at the Federal Reserve) to another depository institution overnight. The rate may vary from depository institution to depository institution and from day to day. This is great for short term loans such as, home equity line of credit, car loans, student loans and credit cards.

I had someone call me and say "I heard the Fed cut mortgage rates to 1%, sign me up". I had to explain how the fed funds rate works and that actually has lead to an increase in mortgage rates in recent cuts.

So what is the answer for long term rates like a 30 YR fixed? For starters, we were able to offer 5% on for qualified borrowers as of this morning. What more are people waiting for? 5% is unbelievably good and only seen a few times in the past. Guess what? They still want lower. Bernanke has stated that he wants to start targeting long term rates, which in turn, would stimulate the real estate market. He stated the Fed, for instance, could buy longer-term Treasury or agency securities on the open market in substantial quantities, he said. This might lower rates on these securities, "thus helping to spur aggregate demand," Bernanke said.

Would this help?

Yes it would help Treasuries, but the problem is they are already very low. Interest rates should already be lower than what they currently are based on the 10 YR Treasury yield. This means that there is too much risk.

We are already at 5%, so if you can't qualify at 5%, you probably shouldn't be buying a home at 4.5% You'll end up being in the same position everyone else is in right now. On top of that, the economy is in such a down side, I think a lot of people are afraid of losing their jobs, so they just don't want to take the risk of buying a new home.

In my opinion, the federal goverment should be more focused on creating more jobs and creating confidence in the consumer sector. Again we are at 5%, what else are we waiting for?