Ever wonder what would happen if you threw a huge party and nobody showed up?  Today the Federal Reserve Board in a manner of speaking opted to test the premise. 

The central bank on Tuesday said it had reduced the federal funds rate, the interest that banks charge each other, to a range of zero to 0.25 percent. That is down from the 1 percent target rate in effect since the last meeting in October. Many analysts had expected the Fed to make a smaller cut to 0.5 percent.

While this news could in the long term be great for consumers and for those shopping for Florida mortgage loans, it is also sobering.  It is painfully apparent that the Fed is desperate.  They’re throwing money at this financial crisis and this latest move is a bold attempt at getting the economy restarted.  From the beginning the problem with the economy as explained by those in the supposed know, was a lack of available credit.  This is a very obvious attempt to tackle that problem head on.  If banks aren’t lending, people aren’t buying but the question still begs, will lower rates make lenders more likely to offer credit?  To this point I really haven’t seen lower rates translate in that way.  If anything, I think that we have seen banks adopt a wait and see approach as they suck up bailout funds in an attempt to simply keep themselves viable. 

With the holidays upon us, and a new administration waiting in the wings, I think that the attitude will remain wait and see.  I don’t know that lenders will adopt any kind of aggressive lending postures in the immediate future and I similarly do not believe that consumer confidence will rise in the short term as a result of this move.  As we get into the new year and people start to pay attention again, we may see some fence sitters take advantage of lower home prices and cheap money.  Similarly, if the big lenders like FNMA adopt streamlined refinancing standards as described in our previous post, we could also see strapped homeowners finally get some relief.  Still, it’s a lot of “what-ifs” and that’s what makes this move on the Federal Reserve’s part so amazing.  If rates at 0%-.25%  do not result in some tangible movement where it concerns housing…. well, I don’t want to think about that.

Here’s to hoping.  Be sure to keep an eye on our rates and by all means give us a call and let us see what we can do for you!