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Paul Nelson and Lori Prichard reporting In a nutshell, here's what happened on the money front Tuesday. The Federal Reserve is the nation's central bank. It made the biggest slash in a key interest rate in 18 years and did so between scheduled meetings for the first time since the 2001 terror attacks.
The Fed cut the Federal Funds Rate, the rate banks charge each other for overnight loans by a bold three-fourths of a percentage point, from 4.25 to 3.5 percent. In turn, commercial banks cut the prime lending rate by the same amount, from 7.25 to 6.5 percent.
The Prime is the benchmark rate for millions of consumer and business loans. Today's rate cut was meant to avert an expected disaster after Monday's stock sell-off in Asia and other world markets. After stocks plummeted this morning, Wall Street rallied in the afternoon. Still, the Dow closed at its lowest point in 18 months.
So what does this mean to all of us? If you're invested in the stock market, whether through a 401k or IRA, your portfolio today could have taken a hit. As for the Fed's rate cut, if you use a credit card, it could lower your interest rates. It could lower your mortgage rate, too, if you plan to buy, sell or refinance a home.
The Federal Reserve's rate cuts are good news for people with credit card debt and adjustable mortgages. Bottom line is, if you have an adjustable rate mortgage and you want to refinance it to a fixed, do it now. "It would be an incredibly important time to get that done, even today," explained Kelly Matthews, economist with Wells Fargo.
Matthews says the cut in the federal funds rate will make the long-term rate drop, and he says the fed could make more cuts in April. Plus, he says credit card rates should go down very soon.
One financial expert told KSL, whatever you do, you definitely shouldn't panic! What the Federal Reserve is trying to prevent is a major sell-off, which essentially is a vote of no confidence by investors.
We spoke with ordinary Utahns today who were pretty confident in the market, just not the real estate market. Sean and Gladys Lynch are looking to downsize. Gladys said, "We're thinking of moving into a condo, our house is larger and the yard is getting to be too much."
Financial analyst Thom Hall says for people like the Lynch's, today's key interest rate cut is good news. "The rate cut today that we had that was very aggressive is likely to help drop mortgage rates in the short term. There's also an expectation built in that there will be additional rate cuts to follow."
While that's good news for buyers, there's the problem of moving the housing market from a bust back to a boom. "We're heading into a trend here where you have more and more people selling their homes and less and less people buying," Hall said.
Speaking of selling, it was a sell-off today on Wall Street. Nancy Natividad says she's watching the sell-off but holding off on selling. "Right now I need to sell some more, but I will be holding onto it because you haven't lost until you sold," she said.
Hall backs that statement with this perspective. "Stay invested in the market. We're at the bottom of a trend right now. And the market could turn around and have some much better numbers in the coming months."
And fears of a recession? Consumers we spoke with today didn't seem too afraid.
Homeowner Sean Lynch said, "I've heard it many times over the years."
And Natividad told us, "I think that if enough people say the word recession, it happens."
There's debate whether it is happening. Still, Hall predicts a mild one. Either way, Hall says those who have a lot of debt should start thinking about unloading it. "If we're in a declining economy where there's downward pressure on wages, downward pressure on the stock market, debt becomes much more expensive," Hall said.
And that's what you don't want. He suggests you really think about paying down your debt; and with the interest rate cut, those with credit card debt may get a break, depending on their credit.
