The Federal Reserve announced yet another rate cut of .25% to the Federal Funds Rate this afternoon -- its 7th since September 2007. University of Chicago Economist and Nobel-laureate Milton Friedman had a favorite way of describing what the Federal Reserve did this afternoon. He called it the Fool in the Shower, and it goes like this:
When the fool turns on the shower, the water is very cold. So, he turns on the hot water. Only the hot water doesn't come on right away so he turns it on full blast. Before long, the water gets very hot, very fast and scalds him. Reflexively, he dials back the heat only to find that he's too cold again.
By cutting its key rate by only .25%, the Fed may be signaling its desire to "test the water" -- waiting to see the impact of prior rate cuts and fiscal stimulus actions. With energy prices at record levels and the dollar at historic lows, the Fed wants to balance the risk of slower economic growth with the need to prevent higher future inflation.
Despite today's news, what matters most is not what the Fed does but what the Fed says, particularly about inflation.
The key point from a mortgage perspective is to remember an often overlooked fact:
The Federal Reserve does not directly control mortgage rates.
With rates at their lowest in years and home prices declining, there are still many opportunities for buyers and borrowers. Contact me for a quick and easy review of your current mortgage and capture for yourself what today's market has to offer.
When the fool turns on the shower, the water is very cold. So, he turns on the hot water. Only the hot water doesn't come on right away so he turns it on full blast. Before long, the water gets very hot, very fast and scalds him. Reflexively, he dials back the heat only to find that he's too cold again.
By cutting its key rate by only .25%, the Fed may be signaling its desire to "test the water" -- waiting to see the impact of prior rate cuts and fiscal stimulus actions. With energy prices at record levels and the dollar at historic lows, the Fed wants to balance the risk of slower economic growth with the need to prevent higher future inflation.
Despite today's news, what matters most is not what the Fed does but what the Fed says, particularly about inflation.
The key point from a mortgage perspective is to remember an often overlooked fact:
The Federal Reserve does not directly control mortgage rates.
With rates at their lowest in years and home prices declining, there are still many opportunities for buyers and borrowers. Contact me for a quick and easy review of your current mortgage and capture for yourself what today's market has to offer.
