The Fed lowered the Fed Funds Rate by 0.250% yesterday. The widely-expected rate decrease was well-received by stock markets to the detriment of mortgage bonds. Mortgage rates climbed higher yesterday afternoon as demand for mortgage bonds waned. This further illustrates that the Federal Reserve does not control mortgage rates. The FFR fell; mortgage rates rose.
Because it is tied to the Fed Funds Rate, Prime Rate fell by 0.250% yesterday, too. 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.
In the statement above -- as explained by The Wall Street Journal -- the Fed expresses concern about the housing slump while noting that the economy seems to be finding a balance. This means that future rate cuts are less likely.
Source
Parsing the Fed Statement
The Wall Street Journal Online
October 31, 2007
http://online.wsj.com/mdcapp/public/page/2_3024-info_fedparse_shell.html
