The Federal Open Market Committee lowered a key rate today. One national lender has been advertising that this affects mortgage rates and she is dead wrong. But that will not stop the questions. Yes, it will affect your Home Equity Line of Credit rate. Yes, it will affect business loans. Yes, it should affect credit card rates. And the same for most consumer loans. But it has no bearing on long term mortgage rates which trade on bond yields. More specifically, Mortgage Backed Security bonds.
Consumers will ask questions. Reporters will trumpet the good news. And the uninformed loan officer will gladly go along. If you are one of those loan officers--just stop it. And if you are working with one of those loan officers, look around for someone who is more informed. If wrong answers on basic issues like this are being given to you, how much else is erroneous?
This lower rate is a mixed bag. If our dollar becomes worth less, then commodities that are imported will cost more. One of those commodities is black and comes in a barrel. And that price, even adjusted for inflation, is reaching record highs. Nothing operates in a vacuum. Consumer confidence can be affected by basic things such as the price of a gallon of gasoline or the annual property tax bill. So, as more and more people start talking about the Fed and how great this news is, just remember we now have another round of corrections to those statements.