Emergency Rate Cut of .750% to Fed Funds Rate

Earlier today, the US Federal Reserve made an emergency rate cut of 75 bps (.75%) to the Fed Funds Rate. Here are some facts on the Fed, the Fed Funds Rate and Mortgage Rates- From the desk of William H. Kumpf

-The Federal Reserve does not control mortgage rates.

-When the Fed cuts interest rates -- fixed mortgage rates may actually rise as a result. If the Fed is taking steps to address economic weakness by lowering rates, that could mean a return to faster growth -- and possible higher inflation, as well -- is coming sooner, rather than later.

-The Fed Funds rate is the shortest of short-term rates -- literally, an overnight loan between banks-- and a fixed-rate mortgage is all the way at the other end of the scale, a loan that lasts as long as 30 years.

-Changes in the federal funds rate trigger a chain of events that affect other short-term interest rates, foreign exchange rates, long-term interest rates, the amount of money and credit, and, ultimately, a range of economic variables, including employment, output, and prices of goods and services.

-When the Fed lowers rates, it does lower home equity lines of credit which are pegged to PRIME. The PRIME Rate is the Fed Funds Rate + 3.00%.

-Lower rates can help banks to make certain kinds of loans less expensive, especially for business and certain kinds of consumer lending, and that can help to fuel growth.

-Higher rates can cool demand, helping to keep inflationary pressures from forming.