The Fed lowered the Fed Funds Rate by a quarter-percent to 2.000% this afternoon.
Because it is tied to the Fed Funds Rate, Prime Rate also fell by a quarter-percent. Prime Rate is now 5.000%.
Holders of home equity lines of credit and credit card debt benefited from the change and will see lower interest costs in next month’s statements.
Mortgage rate shoppers are also benefitting.
Each time the Federal Reserve cuts the Fed Funds Rate, it’s meant to stimulate the economy in growth. Too much stimulation can create too much growth and that often leads to inflation (which causes mortgage rates to rise).
This is one reason why mortgage rates had not fallen over the past few months. Each Fed Funds Rate cut made it more likely that the economy would overheat in the second half of 2008.
So, because the Federal Reserve signaled that a rate-cutting “pause” may be ahead, investors are reducing expectations for a Fed-induced inflation cycle for later this year, pushing rates lower.
The FOMC’s next scheduled get-together is a two-day meeting June 24-25, 2008.
Parsing the Fed Statement
The Wall Street Journal Online
April 30, 2008