question about rate cuts

Discussion in 'Economics' started by frostengine, Sep 14, 2007.

  1. Assuming the fed does cut the rate on tuesday. Does this have a direct affect on mortgage lending rates? Such as if the fed cuts by 25 basis points on tuesday, would mortgage rates for something like a 30 year fixed start dropping very shortly after? Or can the rate be cut with no affect at all on current lending rates?

    If there is an affect how quickly after does it happen? Within days or weeks?
  2. dhpar


  3. There's no exact correlation. In fact, mortgage rates can go up because real estate is perceived as being riskier now than holding treasury securities. It's all a matter of perception and trend reinforcement.
  4. Please correct me if I'm wrong here, but as I understand it: Interest rates do move together. Arbitraging virtually guarantees this across liquid markets. Otherwise you could just borrow one to buy another. But two points support the responses above and the 'NO' answer: structured debt markets aren't working according to models (mortgage financing, which is prone to liquidity issues, now relies upon structured debt trading to grant banks serviceable markets); and rates are already significantly lower as a result of this, so lowering the fed's target rate will have virtually no effect on other rates (lowering the target will be playing 'catch-up' with real rates).
  5. dhpar


    too basic and too complicated to answer in a short post. I suggest you read all attachments here:

    maybe then we can discuss. cheers