Fed Cuts Key Rate to 4.75%
This is great news for the housing industry and Whatcom County area home buyers. Anytime you can reduce the cost of borrowing money to the consumer that opens up more opportunities for buyers to get back into the real estate market.
The central bank cut its key federal funds rate from 5.25% to 4.75%. It also cut the discount rate from 5.75% to 5.25%. The two cuts were larger than most Fed watchers had expected; they'd seen the federal funds rate moving only to 5%.
The federal funds rate, which is what banks charge each other for overnight loans and is the basis for everything from business loans to credit card charges, has been at 5.25% for more than a year. But the Fed has not cut the rate since June 2003.
While the fed funds rate is what banks charge each other for overnight loans, the discount rate is what the Fed charges member institutions directly for short-term loans. The Fed cut the discount rate from 6.25% to 5.75% on Aug. 17 in a bid to soothe jittery global credit markets.
The reason for the dramatic cuts was to help the economy weather the effects of this summer's credit crunch. The Fed said it didn't want the housing slump to spread throughout the economy.
This should help the local housing market here in Whatcom County because there seems to be so many buyers sitting on the fence that want to buy a home and now this interest rate drop today should motivate a lot of buyers to purchase now.
I've been saying for a long time now, that the interest rates even before today were really not that bad, it's all this negative chatter that’s been in the market now for the past two years. It just takes time to move the negative talk out of the markets and maybe today’s news is exactly what we needed to get our local Whatcom County housing market back on track.