The Federal Reserve has announced a rate cut of 75 basis points today, or 3/4 of a percent. That’s an historic cut, but still below the 100 basis points many were predicting yesterday. For consumers this might not mean a lot. Mortgage rates are expected to stay comfortably in the 6% range for the next few months regardless of fed rates. What this does mean is banks may do a little curling out of the fetal position and start to loosen their purse strings. As usual, the rate cut will influence consumers indirectly rather than directly. The real question is how the banks will respond.
Right now lenders are more than a little gunshy, and for good reason. It’s difficult to argue that they haven’t brought their present woes upon themselves, much like the sub-prime borrowers who are in the same boat. No one can tell when we’ll return to a more rational sense of lending, but it’s certain we’ll be struggling with the echoes of the sub-prime debacle for months, if not years, to come.