Ben And The Boys (aka the FOMC) cut short-term interests rates by .25% earlier today in an attempt to:
1) Soften the mortgage industry landing from a smoking hole in the ground, to more of a smoldering skid mark. Don’t tell Washington Mutual who announced 3000 employees were getting pink slips in their stockings, and the bank is setting aside up to $1.6 Billion for losses in the 4th quarter.
2) Generate some consumer confidence this Holiday Shopping Season, since 2/3 of our economy is driven by consumer spending. Uncle Sam wants you to buy a Ford and / or Chevy.
3) Address concerns that “information suggests that economic growth is slowing,”
4) Give me somethnig to rant about (Thanks, guys!)
Interestingly, Wall Street, which has been on the rise over the last two weeks, had apparently priced in a bigger cut, so it responded by pummeling the Dow, lwhich lost 294 points on the day. Ouch! Maybe some retail therapy is in order . . .
Mortgage rates weren’t significantly affected by the rate cut. The Fed Funds rate is a short-term rate, and mortgage rates are long term. Mortgage rates are still at two-year lows, and it’s a Neutral or Buyer’s Market everywhere but Palo Alto.
Apparently, Palo Altans stayed awake in Econ 101 during the lecture on how relative Supply and Demand affects Prices. Although Demand in Palo Alto has dropped in recent months, Supply has dropped equally or more, maintaining or increasing Prices. Adam Smith would be proud.
Bueller, Bueller . . .
Thanks for reading.
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