Too Little, Too Late

The Federal Reserve dropped rates, both the Fed Funds rate and the Discount Rate, by 50 basis points (.5%). The market certainly liked the move, the S&P gaining 43 points or just under 3%. But what does this mean for you and me? If you are one of the poor souls who was drawn in to a variable rate mortgage, and are feeling the pain as your loan adjusts to current interest rates, this move will likely have little impact. At the bottom of the cycle in 2004, the one year T-Bill was down to under 1%. We now have a one year rate of 4.08%, not low enough to keep the sub-prime meltdown from progressing. The rate change may help the lack of liquidity in the credit market be reduced enough to allow a continued business expansion and reduce the risk of recession, but the mortgage crisis is still with us, and we will have at least six more months of loan defaults, foreclosures, and finger pointing to look forward to.
JOE