Analysis

Stuff is happening.

The economy may be
heading toward recession, inflation may be on the rise, gold prices are
up, oil prices are hitting record highs, the dollar is declining in
value, home prices are falling and the Federal Reserve Board met on
Wednesday.

Halloween.

Scary.

Almost all
financial markets have already priced in a quarter percent reduction in
short-term rates. Anything other than that will cause some reaction.
What may be more important than what the Fed actually did, however, is
the statement the Fed issued with their decision, “…the pace of
economic expansion will likely slow in the near term, partly reflecting
the intensification of the housing correction. Today’s action, combined
with the policy action taken in September, should help forestall some
of the adverse effects on the broader economy that might otherwise
arise from the disruptions in financial markets and promote moderate
growth over time.”

You see, long-term interest rates like the
rates on fixed-rate mortgages are based more on expectations of the
future than on what happens right now. The Fed has indicated their
primary focus is on fighting inflation, so they dropped the rates by a
quarter of a percent.”

The future is more uncertain than at any time in recent memory and financial markets do not like uncertainty.

Interest Rate Prediction

Usually, this is the place we
give an indication of where we believe interest rates will go in the
short-term and the long-term, but frankly speaking? This time we just
don’t know. Most likely, rates will go up slightly for the short-term,
but not by much. As things settle out over the next several weeks, we
expect that rates may begin to stabilize and perhaps begin to decline
again.

No one can guarantee economic or interest rate predictions, of course.

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