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Interest rates head up as Fed stays put

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The Federal Reserve kept its target for the federal funds overnight rate at 2 percent today, even as the rate banks actually charge each other for overnight or short-term loans soars over fears related to continued turmoil in financial markets. If the Fed and European central banks are unable to ease those fears by loosening the reins on the money supply, interest rates on many adjustable-rate mortgage (ARM) loans tied to the federal funds and London Interbank Offered Rate (LIBOR) could soar, leading to more delinquencies and foreclosures. Many home equity loans are tied to the federal funds rate, and most subprime and many prime ARM loans are tied to LIBOR. Some 6 million U.S. mortgages are tied to LIBOR, Bloomberg reported, citing data from First American CoreLogic. While the Fed and other central banks can influence short-term rates by loosening or tightening money supply, the rates are ultimately determined by the market. The effective federal funds rate leapt to 6 pe...