Despite being widely predicted, today’s 0.25% interest rate cut by the U.S. Federal Reserve is a welcome relief to credit markets that have been affected badly by the recent credit crunch. This rate cut follows the 0.5% rate cut made in September and moves the federal funds rate to its lowest level since January 2006.
U.S. Mortgage holders are likely to benefit in the short term but European mortgage customers may have to wait a little longer. There is no guarantee that this rate reduction will be followed by a rate reduction in Europe but it does at least have the effect of exerting some downward pressure on rates.
As regards any future rate reductions, the Fed did leave the door open although many commentators felt that a signal was being given that a further rate cut is unlikely this side of Christmas. The effect of this was that Wall Street fell back a little after the announcement only to come back later in the afternoon.
