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So what does the Fed cutting the interest rate really do... for us?

Old 05-01-08, 11:40 AM
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So what does the Fed cutting the interest rate really do... for us?

I'm honestly curious. Besides inevitably decreasing the amount of interest I can get from my savings account? It's supposed to reduce the cost of borrowing, but I haven't really seen my credit card interest rates go down, and banks seem to still be holding tight to their money after all the shenanigans with the mortgage crisis. Even if credit card interest rates go down, and people extend their credit even more because of the rates, won't those same people be in even more trouble once rates snap back?

I guess by indirectly reducing the rate of savings, it does make me more apt to invest to try to get a higher rate of return.
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Old 05-01-08, 11:45 AM
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Makes the dollar weaker against a barrel of oil thus raising gasoline and home heating prices and everything associated with gas prices including food. Its never a good thing when they lower the interest rate, although the media and wall street seem to portray it as a good thing.
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Old 05-01-08, 11:47 AM
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It helps keep us in the houses we bought with adjustable rate loans. It also makes it cheaper for businesses to borrow money so they can afford to hire us.
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Old 05-01-08, 11:52 AM
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Originally Posted by X
It also makes it cheaper for businesses to borrow money so they can afford to hire us.
Also, it makes it cheaper for businesses to borrow money to raise capital to bring in more business which would create more jobs.

Unless you're retired and/or 65, there's no reason to keep such a significant amount of money in savings that a drop of 0.25% in the savings rate has any effect on how much interest you earn. You're likely losing much more over the long term by not having that money properly invested as opposed to the sudden disappearance of $1.25 of interest you'd be earning each week.
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Old 05-01-08, 11:58 AM
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good thing bad thing... all the same...
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Old 05-01-08, 12:01 PM
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It will not change credit cards since they are consumer discretionary credit. It lowers mortgage rates, home equity loan rates commercial loan rates. The effect is to make money cheaper.

Liquid money is always cheap(er) than other investments like bonds or stocks. if you want higher returns and can accept some risk look into investing into utility stocks.
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Old 05-01-08, 12:04 PM
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funny, after the last two rate cuts, mortgage rates increased.
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Old 05-01-08, 12:06 PM
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what doesn't it do?
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Old 05-01-08, 12:08 PM
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Originally Posted by X
It helps keep us in the houses we bought with adjustable rate loans. .

You Win!!

I am convinced that the FED wants to lower rates to dammn near where Greenspan had them (1%) in order stay off the inevitable.

They hope that all these people with adjustable rate mortgages will switch over to a fixed rate - or when rates reset - they will reset at the lower rates (which just keeps people in homes they can't afford until the next reset)

So what is the FED planning on doing - lowering rates ever 5 years for the next 50 years
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Old 05-01-08, 12:10 PM
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It allows all the people and lending institutions that made poor borrowing and lending decisions to not have to pay for their mistakes, instead, everyone that has wealth in US dollars has to pay

Those of us that are responsible and didn't buy more house than we can afford suffer.
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Old 05-01-08, 12:17 PM
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Originally Posted by grrrah
funny, after the last two rate cuts, mortgage rates increased.
Long term rates rose due to long term inflation fears.

The short term bond rates that adjustables are based on went down in general.

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Old 05-01-08, 12:18 PM
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Originally Posted by grrrah
funny, after the last two rate cuts, mortgage rates increased.
Yeah, because the 10-year bond went up to 3.7% from 3.5%.

Fed rate cuts create weaker dollar as an attempt to create growth. Weaker dollar causes inflation. It's a trade-off game.
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Old 05-01-08, 12:21 PM
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that's all we need is a weaker dollar. I'm waiting for the peso to become more valuable than the US dollar.
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Old 05-01-08, 01:24 PM
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Originally Posted by grrrah
funny, after the last two rate cuts, mortgage rates increased.
And therein lies the problem for the Fed. The Fed con only control short term rates and try to nudge monetary policy in a certain direction. If lenders refuse to lower their rates to maintain their spreads (or even increase them) then there is nothing they can do.
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Old 05-01-08, 01:29 PM
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Mortgage rates are barely moving, while savings rates plummet. Pretty much sucks for me since I've been looking to refinance my fixed rate. Once again, I pay for being responsible while the idiots benefit. So I guess I'm the real idiot for being responsible.
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Old 05-01-08, 01:51 PM
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Originally Posted by The Bus
Also, it makes it cheaper for businesses to borrow money to raise capital to bring in more business which would create more jobs.

Unless you're retired and/or 65, there's no reason to keep such a significant amount of money in savings that a drop of 0.25% in the savings rate has any effect on how much interest you earn. You're likely losing much more over the long term by not having that money properly invested as opposed to the sudden disappearance of $1.25 of interest you'd be earning each week.
I've always treated my savings account as an quick access emergency fund. Everybody doesn't do this?
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Old 05-01-08, 01:57 PM
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Originally Posted by X
Long term rates rose due to long term inflation fears.

The short term bond rates that adjustables are based on went down in general.

as a non-expert person that was in the market to lock in a mortage rate, I just say what I experienced.

Long term, short term, yeah, you may be right, but just wanted to point out that some of the statements above were not entirely correct.

good and bad thing I never did lock in a rate, but I have until July. Probably won't matter though as the housing market is telling me to give up the deposit and wait a bit more.
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Old 05-01-08, 01:57 PM
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Originally Posted by Brian Shannon
It will not change credit cards since they are consumer discretionary credit. It lowers mortgage rates, home equity loan rates commercial loan rates. The effect is to make money cheaper.

Liquid money is always cheap(er) than other investments like bonds or stocks. if you want higher returns and can accept some risk look into investing into utility stocks.
Aren't credit card rates based at least partly on key interest rates? In any case, the article in the LA Times said the following:

"Lowering the funds rate is intended to spur growth by reducing the cost of borrowing, including credit cards and business loans. Recent financial turmoil short-circuited the effect of previous cuts, pushing the Fed to cut further and find new ways to buoy the economy."

And I agree, I'm not making a killing with my savings account either way (which is for liquid, emergency reserves), it just seems like my rate has gone down a couple of percentage points even before this recent cut.
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Old 05-01-08, 02:03 PM
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Originally Posted by Brian Shannon
It lowers mortgage rates
Originally Posted by Ranger
Yeah, because the 10-year bond went up to 3.7% from 3.5%.

Fed rate cuts create weaker dollar as an attempt to create growth. Weaker dollar causes inflation. It's a trade-off game.
Originally Posted by X
Long term rates rose due to long term inflation fears.
Correct. An increase in rates increases inflation concerns, which more than wipe out any short-term benefits that cut would have. In the past few cuts, mortgage rates have always increased after the cut.

And mortgages are not in any way tied to the 10-year T-bill, although it's a close enough approximation since most people don't have access to the prices of Fannie Mae mortgage-backed securities.


Originally Posted by Tracer Bullet
I've always treated my savings account as an quick access emergency fund. Everybody doesn't do this?
My point is that if you have a savings account, it should be enough for quick access during emergencies, nothing more. It's nice to have $20,000 in there as opposed to $2,000, but there's no reason to have $50,000 in there instead unless your minimum monthly bills are $4000+.

So, if you only have $5000, what's 0.25% in interest? $13 a year. That's hardly a huge sum to complain about.
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Old 05-01-08, 02:07 PM
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Originally Posted by grrrah
as a non-expert person that was in the market to lock in a mortage rate, I just say what I experienced.
I think X was agreeing with you.
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Old 05-01-08, 02:08 PM
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Originally Posted by fujishig
Aren't credit card rates based at least partly on key interest rates? In any case, the article in the LA Times said the following:

"Lowering the funds rate is intended to spur growth by reducing the cost of borrowing, including credit cards and business loans. Recent financial turmoil short-circuited the effect of previous cuts, pushing the Fed to cut further and find new ways to buoy the economy."

And I agree, I'm not making a killing with my savings account either way (which is for liquid, emergency reserves), it just seems like my rate has gone down a couple of percentage points even before this recent cut.
In theory yes, in reality no.

Did you know that you can have a credit card for your home equity line of credit? Stupid, yes I know but you can. For this card the rate would likely go down. For the average bank card like a Visa or Mastercard, no, lowering interest rates will not change what the banks charge. Revolving credit is hugely profitable and some thing of a sacred cow. Car loans or other types of personal credit may come down but there are other factors there such as lending ratios and collateral types and ages.
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Old 05-01-08, 02:49 PM
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Oops, sorry, didn't realize this was a political discussion.
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Old 05-01-08, 03:19 PM
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Oh, this is good. Can't wait to see how Obama and Islam tie into this.
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Old 05-01-08, 03:35 PM
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Originally Posted by 4KRG
It allows all the people and lending institutions that made poor borrowing and lending decisions to not have to pay for their mistakes, instead, everyone that has wealth in US dollars has to pay

Those of us that are responsible and didn't buy more house than we can afford suffer.
And how anoying is this? The banks precipitate a crisis by irresponsible lending practices - and then rather than going to the wall, like they should, they proceed to make money from the pockets of responsible borrowers/savers. It makes me MAD!!!!
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Old 05-01-08, 04:13 PM
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Originally Posted by imperator505
And how anoying is this? The banks precipitate a crisis by irresponsible lending practices - and then rather than going to the wall, like they should, they proceed to make money from the pockets of responsible borrowers/savers. It makes me MAD!!!!
Does it also make you mad that the government forced banks to stop redlining, and in effect fostered reverse-redlining, which caused banks to make a lot of risky loans?
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