Having already rolled out an emergency rate cut of 50 basis points two weeks ago, the Federal Reserve has just announced an even larger cut of a full percentage point (100 basis points), resulting in a target federal funds rate of zero to 0.25 percent (which the Fed expects to maintain “until it is confident that the economy has weathered [the COVID-19 pandemic] and is on track to achieve its maximum employment and price stability goals”).
In addition, the Fed has announced it will increase its holdings of Treasury securities “by at least $500 billion” and its holdings of agency mortgage-backed securities “by at least $200 billion” over the next couple of months, which should drive rates down.
And with the Fed’s emergency announcement having been taken into account, Dow futures are currently down over 1,000 points or 5 percent, which is the maximum drop allowed.
Not currently effective. Mortgage rates are still hitting 4.5-5%
That being said, when the FED rate drops like this who would trust the economy to support prices as of now?
While the average 30-year rate inched up from an all-time low of 3.29 percent to 3.36 percent last week, it was still 95 basis points below its mark at the same time last year and well below a long-term average of over 6 percent.
UPDATE: The Dow just closed down 2,997 points (12.93 percent).
UPDATE: The Fed Affirms: No Rate Hikes on the Horizon, Risks Loom