Industry NewsMortgage

Fed’s interest-rate cuts will benefit ARM, HELOC borrowers

Effect on long-term rates remains to be seen
Published on Jan 22, 2008

The unscheduled and dramatic cut in short-term interest rates announced today by the Federal Reserve will provide immediate relief for borrowers with home-equity loans or facing interest-rate resets, mortgage market experts say. But long-term rates -- which were at 2 1/2-year lows before today's 75-basis-point reduction in the discount rate and the target for the federal funds overnight rate -- could move in the other direction if bond market investors get nervous about inflation. For now, the Fed seems to have decided that the threat of a recession far outweighs the risk of inflation, making in a single day cuts in short-term rates some observers had expected would be stretched out over months. "Just a few weeks ago, the consensus was that the Fed would cut no more than 75 basis points, and 3.25 percent would be trough," said Freddie Mac's chief economist Frank Nothaft. "We're there already. So are we at the low point? It's really hard to say." Nothaft said the Federal...

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