Fed Cuts Rate

In the midst of a mortgage meltdown, the Fed cut rates today to 4.75% from 5.25%. This cut was the first since June 2003 and is being seen by many as acknowledgment from the central bank that the mortgage meltdown may have negative effects on the economy.

“The tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth,” said the Fed. According to their statement, the intend of the rate cut is to counteract some of the negative effects on economy and to promote moderate growth over time.

The federal funds rate is a lending rate that banks charge each other and is significant in that it influences the amount of interest consumers pay for various types of debt including home loans and credit cards. The cut is great news to current home owners dreading the rise of their ARMs and new home buyers who want the best rate possible.

Although the rate cut is great news, market experts caution that this doesn’t end the credit crisis.

“People should not assume that the economy’s problems are over. That would be a mistake. They are significant and they are widespread,” said Larry Smith, CIO with Third Wave Global Investors, a Greenwich, Conn.-based investment advisor with about $400 million in assets.

The Fed’s next monetary policy decision is scheduled to take occur at the end of a two-day meeting October 31st, and its last meeting of 2007 is set for December 11th. Many sources are speculating that the Fed will cut rates at least one more time before year’s end.