Fed Cuts Interest Rate to Boost Housing

[Dec 6, 2007.]

When the Federal Reserve Board cut its federal funds rate by a quarter of a percentage point, the goal was to correct the national housing slump. The rate decrease—the second in 6 weeks—is also designed to help keep recession at bay.

In its official statement, the Fed said, "The pace of economic expansion will likely slow in the near term, partly reflecting the intensification of the housing correction."

The decision won the approval of Fed Chairman Ben Bernanke and all but one of his colleagues. The rate cut is significant because it impacts a number of other interest rates charged to consumers and businesses throughout the nation.

The ruling had an immediate impact—banks such as Bank of America decided to reduce their prime lending rate to 7.5% for credit cards, home equity loans, and other loans. The hope is that the rate cuts will encourage people to increase their spending, helping to revive the sagging economy.

The decision also had an immediate effect on the stock market. In fact, the Dow Jones Industrial Average soared more than 130 points in the wake of the news.

Officials at the Federal Reserve said that the recent rate cuts should help "forestall some of the adverse effects on the broader economy" arising from the national housing crisis and the credit crunch. The Fed could cut a key interest rate again in December, but some economists believe the move is unlikely.

Interestingly enough, the economy expanded by 3.9% in the third quarter, the fastest rate in more than a year. Fed officials called the economic performance "solid" in the summer. They also observed that "strains from financial markets have eased somewhat on balance." Still, economic growth is expected to stagnate this quarter. An expansion of only about 2% or even less is predicted. That could lead to an unhappy holiday season for retailers this year.

Julie Ann Amos
December 6th 2007

Recent News

• Federal Reserve Considers Rate Cut Prudent
  When members of the Federal Reserve opted to cut a benchmark interest rate in September, they considered it "the most prudent course of action," according to the Fed's recently-released meeting minutes. [11th November 2007]


• Poll Shows Concerns Growing Over U.S. Economy
  A new Associated Press poll shows that an increasing number of people believe the economy is the country's top problem. However, for the most part, Americans remain more concerned about the war in Iraq. [11th November 2007]


• New Housing Coalition Could Impact Foreclosure Rates
  The White House has now introduced a new mortgage industry coalition which could help homeowners to avoid foreclosure. The coalition is designed to assist those 2 million homeowners with adjustable rate mortgages who could otherwise be priced right out of their homes. That's because the introductory low rates are about to reset to much higher interest rates. [11th November 2007]


• Mortgage Fundings for Countrywide Decrease in September
  A major mortgage lender reports that its mortgage fundings dropped a significant amount in September. [5th November 2007]


• Manufacturing Growth Stagnates
  New statistics from an industry trade group reveal that growth in the country's manufacturing sector is stagnating. [5th November 2007]


• Home Sales Index Marks Record Low
  A forecasting index for home sales decreased to a record low in August. The downturn appears to be the result of prospective homebuyers having trouble securing mortgages. As a result, forecasters are saying that the housing market will not recover in the short-term. [5th November 2007]

• Getting A Larger House – What Type Of Mortgage?
  Today, if you want a larger house, there are a number of ways that you can do it. In days gone by, however, about the only way you could do this was if you got a better job, received an inheritance, or to borrow money from a relative.


• Could A Cash Out Mortgage Be For You?
  If you have ever wanted to get hold of some of that cash value that is tied up in your home's equity, then it is possible that a cash out mortgage may be your ticket. These mortgages are becoming popular lately because they enable people like you to get the access they want.