The Fed Will Cut Interest Rates Tomorrow (Sept. 18th)

The Federal Reserve meets tomorrow to decide on the federal funds rate. This is the rate banks charge each other for short term overnight lending. Prime rate (the rates banks offer their best corporate clients) is usually three points higher than the federal funds rate. These days a lot of second mortgages are tied to the prime rate. Hence, this is the only direct effect a homeowner will feel from a Fed move. So, if you have a second mortgage tied to the prime rate then your interest rate will change depending on what the Fed does tomorrow.

Contrary to popular opinion the action by the Fed doesn’t affect home mortgage rates. I’m talking about the 30 year, 15 year, 5-year ARM’s etc. Any affect on the interest rate for these mortgages is indirect and happens well after the action by the Fed.  

I predict that the Federal Reserve will cut interest rates tomorrow by 0.25%. This will lower the prime rate to 8.00%. As you may recall, the Federal Reserve left rates untouched the last time they met.

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