Commercial Rates to Decline as Fed Cuts Interest Rate

Markets Jump After Fed Cuts Rate - Could this be Good News For Commercial Rates?

The U.S. Federal Reserve has cut the rate by three-quarters of a percentage point to a target rate of zero to 0.25 percent.

U.S. Commercial banks are now expected to lower the prime rate, this is the key rate for many loans to consumers. The current rate is 4%. That is the lowest level on record in the United States for the target rate.

The cut sparked jumps in the stock markets and a drop in the U.S. dollar against other currencies.

The Fed said U.S. labour markets conditions. consumer spending, business investments and industrial production are all falling.

CBC news reports, ” Financial markets conditions remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.”

The central bank commented that the economy is so bad that the rock-bottom rate is likely to continue for some time. They will continue to purchase large quantities of debt and mortgage-backed securities to support the mortgage and housing market.

Stocks Make Move Upward

The move provided a surge in the stock markets. In New York, the Dow Jones Industrial average gained 359 points to 8924. At the time of the announcement it had been up less than 100 points before the annoucement.

The S&P/TSX composite index rose to 8,724.

The U.S. Dollar fell against other currencies, including the Canadian dollar, which closed up 2.02 cents to 83.21 cents US.

The U.S. Labour Department reported that inflation in November fell a record 1.7 percent, the biggest drop since seasonally adjusted statistics were introduced in 1947. The drop in oil prices drove the decline.

The Fed cut was announced after a two-day meeting to consider its response to what some are calling the worst U.S. economic conditions since the 1930s.