Fed Funds Rate Cut from 1% to 0 - .25%

From FederalReserve.gov - FOMC Statement for December 16, 2008 Meeting - (FOMC press release below in its entirety):

The Federal Open Market Committee decided today to establish a target range for the federal funds rate of 0 to 1/4 percent.

Since the Committee's last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further.

Meanwhile, inflationary pressures have diminished appreciably. In light of the declines in the prices of energy and other commodities and the weaker prospects for economic activity, the Committee expects inflation to moderate further in coming quarters.

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.

The focus of the Committee's policy going forward will be to support the functioning of financial markets and stimulate the economy through open market operations and other measures that sustain the size of the Federal Reserve's balance sheet at a high level. As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Christine M. Cumming; Elizabeth A. Duke; Richard W. Fisher; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Charles I. Plosser; Gary H. Stern; and Kevin M. Warsh.

In a related action, the Board of Governors unanimously approved a 75-basis-point decrease in the discount rate to 1/2 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Cleveland, Richmond, Atlanta, Minneapolis, and San Francisco. The Board also established interest rates on required and excess reserve balances of 1/4 percent.

Wow. Again, the Fed cut the Fed funds target rate from 1% to 0-.25%. I think they said it best over at Calculated Risk - "This is quite a statement ... Fed will hold rates low for an extended period." Things are bad and it looks like they will continue to be so for the foreseeable future.

Federal Funds Rate Predictions, The FOMC Decision, Your Money, and More Real Estate Investors

Where's the Federal Funds Rate headed? Currently sitting at 1.50%, the markets are now nearly split whether they think the Feds will drop the rate to either 1.00% or 0.75% (a 50 bps cut moves the Fed Funds Rate to 1.00% while a 75 bps cut would drop the rate to 0.75%):


The FOMC meeting is now upon us. The two-day FOMC meeting is scheduled for Tuesday, October 28, 2008 with the Fed Funds Rate decision made during the Wednesday, October 29, 2008 meeting:

If you are having a problem viewing the video below, try this link - (Bloomberg) Fed Meets Today On Interest Rates


Home equity lines, home equity loans, or any other loans tied to the Fed Funds Rate, barring any unexpected surprises, will be getting more attractive once again.

On a 100k loan, a 50 bps cut will make your money another $500 cheaper over the span of a year. A 75 bps cut will make your money another $750 cheaper of the span of a year.

Since the June 29, 2006 meeting, the Feds have dropped the rates from 5.25% to 1.50%, a drop of 3.75%. Again, on a 100k loan tied to the Fed Funds Rate, your money has gotten $3,750 cheaper over the span of a year, $312.50 per month, $10.27 each day!

For real estate investors using their equity to fund their purchases, these rate cuts translate into phenomenal savings. Couple these savings with home values that have dropped significantly in many locales and a volatile stock market, it's no wonder that real estate is beginning to look attractive once again.

A return to fundamentals and improving cash flow scenarios translates into more real estate investors. With deals to be had, investors will continue to enter the market in greater numbers; ultimately chipping away at these huge inventory levels one REO and foreclosure at a time.