How soon after the federal reserve FOMC meeting are rate changes reflected in the marketplace?
March 8th, 2010 | by admin |I am buying a house and I need to lock in my interest rate by 10/30/08. I am betting rates will go down at the federal reserve meeting on 10/28 – 10/29. What are the chances a rate decrease will be reflected in the mortgage marketplace by 10/30? Do things move that fast?
The banks typically act pretty swiftly — at least in certain aspects of their operations. However, deals that are already in progress may continue being processed under the same terms. If the Fed changes the discount rate today/tomorrow, that’s the rate for bank-Fed transactions. It most immediately impacts the banks dealings with the Fed, then other banks.
For retail customers, it generally takes a little longer to "work its way down through the layers." With the upheaval in the markets and especially in the financial industry for the past year-plus, spreads between the discount rate, Fed funds, LIBOR, repo, commercial paper, T-bill, and other assorted "rates" are diverging more. It becomes ever more difficult to gauge market reactions in unsettled times. We cannot go by "normal" or "typical" behavior patterns because the psychology of the market is a-typical now.
A drop in the discount rate is not going to do you all that much good on a mortgage interest rate the very next day. Furthermore, it is your credit rating and the loan terms, security (the property), which have the greatest impacts on your rate. A .5% drop at the Fed will not give you a .5% drop on your mortgage interest rate.
2 Responses to “How soon after the federal reserve FOMC meeting are rate changes reflected in the marketplace?”
By golferwhoworks on Mar 8, 2010 | Reply
no they don’t. Your rate is market dependent and the FED doesn’t have any thing to do with it at all. If any thing even if they lower the rate it will take 60 days at best to have any true effect but if there are huge sell offs in all markets because of it then yes you may want to float for now
References :
By ibu guru on Mar 8, 2010 | Reply
The banks typically act pretty swiftly — at least in certain aspects of their operations. However, deals that are already in progress may continue being processed under the same terms. If the Fed changes the discount rate today/tomorrow, that’s the rate for bank-Fed transactions. It most immediately impacts the banks dealings with the Fed, then other banks.
For retail customers, it generally takes a little longer to "work its way down through the layers." With the upheaval in the markets and especially in the financial industry for the past year-plus, spreads between the discount rate, Fed funds, LIBOR, repo, commercial paper, T-bill, and other assorted "rates" are diverging more. It becomes ever more difficult to gauge market reactions in unsettled times. We cannot go by "normal" or "typical" behavior patterns because the psychology of the market is a-typical now.
A drop in the discount rate is not going to do you all that much good on a mortgage interest rate the very next day. Furthermore, it is your credit rating and the loan terms, security (the property), which have the greatest impacts on your rate. A .5% drop at the Fed will not give you a .5% drop on your mortgage interest rate.
References :