FED’s 1st Emergency Rate Cut Since 2001… is just in time!

We live in interesting, interesting times…

On Monday, January 21, 2007, there came a global stock sell-off fanned by increased fears of a recession. Confronted with these events The Federal Reserve cut a key interest rate by three-quarters of a percentage point on Tuesday, the biggest one-day move by the central bank in recent memory. Also, the first time to cut rates between meetings since the 2001 – 9/11 attacks!

The FED felt the pressure and called an emergency video conference meeting Monday night. This meeting was called after a global financial markets sunk throughout the day as the rest of the world feared that the largest global economy could be heading toward a recession. (And I have a hunch that this prompted Bush to put in a call to Big Ben to start dialing up the officials to take action).

The Action:
The reduction in the federal funds rate from 4.25 percent down to 3.5 percent marked the biggest reduction in this target rate for overnight loans on records going back to 1990. the Federal Reserve cut its overnight lending rate by 75 basis points to 3.50%,

The Effect:
Although catching the banks by surprise by making this early move, Wallstreet still began down, but did recover a bit. Globally, Japan’s Nikkei had its beggest decline in nearly 10 years, Australia’s benchmarj index sank 7% and Hong Koing”s key averahe finished 8.7 percent after a more than 5 % drop Monday.

Where Do We go From Here:
All in all, this is predictable. Remember media coverage is meant to be entertaining. What I don’t like is causing panic. Lets be honest, Stocks in Dow have frequent 3 digit drops, and with a stream of weak economic data & reports of financial firms losing billions (Bank of America the latest), all pointing to the housing market this FED cut will not change things over night. This is good, because the lower cost of money will increase its demand for it. However, just as housing will take some time to recover, so will this volatile market. It can take months for an interest rate cut to work its way through the economy. In the short term, it makes borrowing cheaper, but the billions of dollars in failed mortgages over the past year have made lenders wary of writing loans to almost anyone – consumers or corporations. And the heavy losses that banks and other financial institutions have suffered have raised questions about their stability.

No one expected an interest rate cut alone to erase investors’ concerns. For the market to truly gain a foothold, investors need to see strong economic data in the coming weeks and solid earnings reports and forecasts this week from big multinational companies like Microsoft Corp., AT&T Inc., Caterpillar Inc. and Honeywell International Inc.

Light At The End of The Tunnel:
As Larry Kudlow states in his blog, “We may be closer to a stock market bottom than many believe. This correction is already about 20 percent. There are a lot of great stock market bargain values. Smart investors always look to the long-run. Don’t worry about timing anything. The world is not coming to an end. Our free-market capitalist system goes through periodic corrections and cleansings. It’s the natural order of things. Things are going to be okay.” {The Fed Got It Right}

If I were considering financing/refinancing a home, my recommendation would be to Lock if my closing was taking place within 7 days. This is only my opinion and can never guarantee, especially in this daily market volatility. And the FED aren’t done yet, there is a 54% chance there will be another rate cut at the scheduled meeting next week, so check back at The Property Tip for the updates!