On Tuesday the Fed lowered the federal funds rate to 0% -.25%, the first time it has ever been below one percent, in an effort to encourage borrowing.  Several major banks announced that they were lowering their prime rate to 3.25% after the Fed’s rate cut.  Banks usually set their prime rate at 3% above the Fed’s fund rate and before the announcement, prime was at 4%.

 

Although current mortgage rates are not tied to the Fed funds rate, meaning they most likely won’t drop .75% on the news, they will certainly be affected.  Many existing mortgages that have adjustable rates are tied to the prime rate and should see a lower rate upon their next adjustment.

 

Many economists look at the Fed’s rate cut as purely symbolic since the current problem that individuals and businesses are facing is a lack of available credit and not the cost of the credit.  Never-the-less, the Fed is making the effort and utilizing the tools that they have to try and keep our economy from deteriorating any furthher.