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.
Renewed rally cries for an intermeeting, globally concerted effort, rate cut by the Feds before their two day meeting at the end of the month (October 28th and 29th). Bernake signals a cut may be on the way.
The drumbeat only got louder as the DOW dropped over 500 points in today's trading session. Today's loss pushed the DOW to a 5-year low.
If the Fed does cut rates again, what does that mean for real estate? If you have home equity, car loans, business loans, or any loan tied to the fed funds rate, your money will get cheaper.
In regards to real estate, the cheaper cost of money will spur more real estate investors to begin looking at real estate as a viable investing option again.
In consideration of the numerous monetary policies being implemented, I think one has to wonder if the housing bottom is just around the corner.
As expected, the Fed held steady keeping the central bank's short term interest rates at 2%.
The Fed warned that the inflation outlook remains "highly uncertain" but also indicated that problems in the credit and housing markets, as well as high energy prices, are likely to hurt economic growth over the new few quarters.
The Fed also dropped language that it used in its last statement about downside risks to the economy. In June, the Fed said those risks "appear to have diminished somewhat."
Some economists saw the absence of that phrase in Tuesday's statement as a sign that the central bank is growing more concerned about a deeper-than-expected recession.
-Money.cnn.com
With the housing market turmoil, high oil prices (even though there has been significant downward pressure on pricing per barrel over the past week), and inflation worries, I believe the Fed will not take any drastic measures for the foreseeable future.
Share with us the different real estate markets that you are working in and why. Let us know the different real estate investing strategies that you are having success using.
We are currently focusing efforts on light rehab projects in the greater Phoenix, AZ market. Due to large inventory levels, values are becoming increasingly attractive and, aggressively priced, these homes are attracting buyers.
Update August 24, 2008: We purchased another real estate investment home from the public Trustee auction. This rehab project should be completed and ready to be listed by September 1, 2008!
In the near term, we believe real estate investment opportunities will continue to exist in the greater Phoenix, AZ area since there are many bank owned homes and foreclosures still to work through. As a result, this continued pressure will force sellers to be aggressive with their pricing especially if their home needs work.
We also believe that the sharp price declines that have been occurring over the past year will begin to slowly equalize. Take your time finding the right investment opportunity. They're definitely out there!
Update September 21, 2008: We continue to believe, despite the current financial crisis, that the sharp price declines will continue to slow. We also feel that you should continue to take your time looking and evaluating real estate investment opportunities as the markets try to workout the turmoil. There are great opportunities but there is no need to rush as strong opportunities should continue to be widely available over the next year!
Update August 24, 2008: The fed remains between the proverbial "rock and a hard place" in regards to the rates as there continues to be downward pressure on real estate, further deterioration of the overall US economy, and inflation is beginning to rear its head!
Update September 9, 2008: Jobless claims continue to rise. The unemployment rate rises to 6.1%.
