Federal Reserve & Interest Rates

The rates cuts are starting to make a significant impact on borrower’s payments.  Homeowners, specifically will probably see at least a small reduction in monthly payment amounts.

Banks expect to see a wave of refinancing seekers during 2008, especially when we see further rate reductions initiated by the Fed.  Adjustable rate mortgages will be refinanced throughout the year.

Further rate cuts will continue to affect the average American consumer, specifically homeowners.  A majority of consumers at this point are deep into debt, and less people are relying on savings and investments for purchases.  Most consumers are borrowers, so the reduction in interest rates overall by the FOMC has slightly reduced the interest rates offered on mortgages.  Existing mortgages will benefit the most.

Homeowners are not only benefiting from lower rate refinancing opportunities, but they are avoiding major increases in monthly payments as well.  Many payments adjust a couple times a year, and in many cases, payments that would have increase more dramatically (a few hundred per month) will see more modest increases (perhaps only $100).

Other borrowing, including credit cards with adjustable rates, will also be affected.  There is a more modest change as far as credit cards are concerned, only a few dollars per month in most cases, but lower interest will truly make the difference for those who maintain higher revolving balances on cards.  Car loans may also be offered at lower rates, and notes may be adjusted to slightly lower rates as well.

Additional rate cuts throughout this year are definitely expected by economists and investors.  With consumers saving on debt payments and the new fiscal stimulus providing a bit of cash flow, consumer spending is expected to rise, at least temporarily.  Consumer spending is a significant indicator of economic performance, and a boost in that area will certainly be positive for the economy.  Granted, it may take some time for the money being saved to make it’s way back into circulation, as some will try to save it.  Nonetheless, the typical American will find something to spend the extra money on.  A rise in consumer spending could help boost the economy.