Fed Drops Rate by .75%!

For those of you who aren't members of PRSA like I am and haven't seen or heard the news, The FOMC has reduced the Federal Funds Rate by .75% today. This rate is the target rate is uses to 'suggest' to banks the amount they should charge each other for borrowing funds. You can read the full press release here: http://www.federalreserve.gov/newsevents/press/monetary/20080318a.htm

Acronym Index
FOMC = Federal Open Market Committee, often referred to in these matters "The Fed."
PRSA = Perpetual Rate Shopper's Anonymous. Ok, I made that one up, but you get the idea.

As a point of clarification, this does not mean that 30-year Fixed rate loans dropped by 3/4 of a percent. Actually, 30-year Fixed Rates went up Today, which is consistent with the last two "Fed" rate drops.

Why, you may be asking?

The short answer is there are many, many factors that drive interest rates. In Today's case, IMHO (in my honest opinion) the biggest factor is the stock market, which closed today after adding a 400-point gain, the largest single-day gain in 5 years. That money has got to come from somewhere, and today it came from the bond market. Pulling money (selling) in the Bond market translates into lowering the demand for bonds, which in-turn lowers the rate investors are willing to pay, and that raises rates. In short, weak demand for a particular bond raises interest rates on that bond.

More than you ever wanted to know? Maybe; more than you ever needed to know? Quite ossibly. For those skinless cats out there (e.g. the ones with curiosity), here's a Web site that has some nice basic information about bonds. Some nice bed-time reading for you. http://money.cnn.com/magazines/moneymag/money101/lesson7/index.htm

The good news is that 30-year Fixed rates are still under 6% for many scenarios and it is a really, really, REALLY great time to buy!

I'll keep you posted and as always, thanks for reading!

--James