Six weeks ago the Federal Reserve cut both the benchmark interest rate and the discount rate by 25 basis points (a quarter percent) while signaling that further cuts were unlikely. Our questions at the time: “Will the cuts help revive our national housing market? And of course, what impact (if any) will the cuts have on mortgage rates closer to home?”
Today the the Federal Reserve cut both the benchmark interest rate and the discount rate by another 25 basis points. And it looks like we have an answer (at least to question number one):
The economy is faltering after a third-quarter surge as house prices drop, consumer spending slows and banks tighten lending standards for even their best customers. Chairman Ben S. Bernanke has struggled to insulate the economy from financial- market instability since the central bank began reducing borrowing costs in August.
“Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending,” the FOMC said. “The committee will continue to assess the effects of financial and other developments in economic prospects and will act as needed to foster price stability and sustainable economic growth.”
And related to our question number two (regarding local rates):
Because banks are protecting capital, lending has been cut and concerns about counter-party risk are higher. About 40 percent of lenders have increased their standards for the most creditworthy borrowers to qualify for a so-called prime loan, according to a Fed study in October.
Interest rates for jumbo 30-year fixed-rate mortgages are about 6.68 percent, a spread of 92 basis points over non-jumbo loans of $417,000 or less. A year earlier, the spread was 36 basis points, and last month it was 57. A basis point is 0.01 percentage point.
∙ Fed Lowers Benchmark Rate by a Quarter Point to 4.25 Percent [Bloomberg]
∙ The Federal Reserve Cuts Benchmark/Discount Rates By 0.25% [SocketSite]