LendingTree Loans Chief Economist Comments on Today’s Surprising Fed Cut
Today the Federal Open Market Committee (FOMC) cut both the fed funds rate and discount rate by 75 basis points, or .75 percent.
LendingTree Loans Chief Economist Jim Svinth said “Today’s Fed move was necessary and quite frankly, overdue. It’s what the market needed for liquidity purposes and what borrowers needed to get off the fence and refinance their ARMs into fixed rate loans. This should also be very helpful for people who have held off purchasing a home as they waited for rates to come down. For those folks, the landscape changed for the better today.”
Today’s action was the largest unscheduled interest rate cut in more than 20 years. The move lowered the target on a key short-term interest rate from 4.25 percent to 3.5 percent. The decision was made ahead of the Fed’s regular meeting, which is slated for the week of January 28. According to a statement issued today by the Federal Open Market Committee, “The Committee took this action in view of a weakening of the economic outlook and increasing downside risks to growth.”
What does the rate cut mean to borrowers?
The Federal Reserve decision lowered the cost of borrowing for businesses. The federal funds rate, the rate that was lowered today, influences the prime rate, which in turn can influence short term interest rates. Variable-rate short term loans such as home equity lines of credit, adjustable rate mortgages tied to the prime rate, auto loans and credit card interest rates may all be affected by the rate cut. Fixed-rate loans, which are tied to long- term interest rates like the 10-year Treasury note yield, are less likely to be immediately affected by the Fed decision, but do tend to be indirectly impacted by the Fed’s action.
In summary, while the Fed does not directly control mortgage rates, it does have an indirect impact on borrowing rates, particularly with shorter term loans. With today’s rate cut, look for credit card interest rates, auto loans and even some home loans to dip slightly.
About LendingTree, LLC
LendingTree, LLC is the nation’s number one online lending exchange, providing a marketplace that connects consumers with multiple lenders that compete for their business. Since inception, LendingTree has facilitated more than 23 million loan requests and $185 billion in closed loan transactions. LendingTree provides access to mortgages and refinance loans, home equity loans/lines of credit, auto loans, personal loans, credit cards and high-yield savings accounts via www.lendingtree.com and 800-555-TREE.
Launched in 1998 with headquarters in Charlotte, North Carolina, LendingTree, LLC also owns and operates LendingTree Loans(sm), LendingTree Settlement Services, LLC, GetSmart(R), and HomeLoanCenter.com. LendingTree, LLC is an operating company of IAC (NASDAQ:IACI) .