October 31, 2007 - For the second time in two months, the FED has cut interest rates. This time, it cut the short term Federal Funds Rate to ¼ point to 4.5%. This is the lowest that it has been since April, 2001. The cut will affect interest rates charged on credit cards and other shorter term loans, such as those used to purchase automobiles.

In announcing the cut, Federal Reserve Chairman Ben Bernanke said that the reason for the rate drop was to help the broader economy. The FED has been concerned that there will be a slow down due to liquidity problems with home mortgage markets.

It is not likely that today's cut will have any significant impact on home mortgages. These are longer term loans. This means that anyone hoping to refinance an existing mortgage, or purchase a new home will not see any significant drops in interest rates. The same holds true for anyone who already has and adjustable rate mortgage.

This rate decrease does come with some risks. It is likely to weaken the US dollar even more. This will make it more expensive for Americans to purchase goods manufactured overseas. The decrease could also increase inflationary pressures which are currently being pushed by higher oil prices. These factors have led some economists to speculate that today's move could be a mistake.

by Jim Malmberg

Note: When posting a comment, please sign-in first if you want a response. If you are not registered, click here. Registration is easy and free.

Only registered users can write comments.
Please login or register.