Fed Fund Rates
With the fed meeting tomorrow and investors expecting a rate cut. Would like a bit of info of exactly what the fed fund rates implies. I do understand that the interest rate is what banks collect on money when lending to other banks and w/ lowering rates it trickles down to the borrow who plays less interest ect. but/ how does this affect the housing market. Just allows you to refi. and play low intesrest rates. which in turn saves money and allows home owners to have more money at the end of each money and have money left to go out and buy to stmiulate the economy?? Any explanation would be great!!
Answers
419 points
TeachMeMore answered one year ago …
Well, don't look at it as a "fix" for the housing market.
It's more of a way to stimulate big businesses....if big businesses know they can borrow at low rates, they probably will. This will help them expand and continue operations...if they do that then they can continue to employ people.
If people keep their jobs, they'll keep spending which will in turn prop up the economy (remember, 70% of the U.S. GDP comes from consumer spending).
That's the basic goal of lowering interest rates.
4085 points
EthanR answered one year ago …
Many people do not understand that the mortgage interest rates typically react to economic conditions, and thereby anticipate FED rate cuts or increases, rather than come down or up after they are made. Therefore, you are likely to see mortgage interest rates come down BEFORE the Fed cuts rates, not after. However, since people do not understand this, the media announcement that the FED cut rates typically spurs a lot of calls to the mortgage companies about buying homes or refinancing existing loans.
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EthanR answered one year ago …
Many people do not understand that the mortgage interest rates typically react to economic conditions, and thereby anticipate FED rate cuts or increases, rather than come down or up after they are made. Therefore, you are likely to see mortgage interest rates come down BEFORE the Fed cuts rates, not after. However, since people do not understand this, the media announcement that the FED cut rates typically spurs a lot of calls to the mortgage companies about buying homes or refinancing existing loans.
Read more from EthanR
3963 points
MNSL answered one year ago …
In fact TeachmeMore and EthanR have given some good answers. I like to add some more. I do not think just because rate cuts there will be rebound in the housing market. Unlike stock market it will take longer period to recover housing market and to improve present sentiments.
What they are trying to do is to bring some liquidity to financial market.
We have to wait and see how these cuts will benefit economy.
379 points
dustbusterz answered one year ago …
the Fed Fund Rates is just the rate that banks get from the fed when they need to borrow funds. this is in theory, supposed to make it where banks can then loan money to us at a reasonable rate,thereby keeping the economy going ,when it appears to be slowing. the reason this has not worked , is due to the sub prime mess we keep hearing about. banks have suffered a huge loss due to these sub prime loans and are now scared(tightening the belt so to speak) making people show proof of ability to repay. so even though they can borrow at cheaper rates, banks still are not making as many loans available as in the past and also not as cheap as one might expect right now. this will all ease up in time, but still, you have to look at home values as well. if a home is too expensive to afford, then who will buy it. so as this mess of sub prime loans works its way out, housing prices will continue to drop for a while ,till we hit the point of afford ability for many.its beginning to look as if this could take many years for it all to play out.
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