Rate Update April 30, 2008

The markets are eagerly awaiting the Fed’s announcement which is scheduled to be announced at 2:15PM EST. Analysts expect that the Fed will cut short term rates by an additional .25%. As we’ve mentioned throughout this rate cutting cycle the Fed’s rate cut in and of itself will not move the markets. What could drive the markets is the tone of the Fed’s statement following the announcement. Here is a summary of what to listen for:

*If the Fed stresses concern about inflation in their statement over economic recovery it is likely a sign that the Fed is done cutting rates in the near-term. Although concern over inflation is bad for mortgage rates because the Fed is indicating that that they’ll pause it could actually strengthen the US Dollar and help mortgage rates.

*If the Fed maintains the view that their concern for inflation is “balanced” with economic growth then they are likely leaving the door open for future Fed cuts. In this instance we do not believe mortgage rates would benefit because of inflationary pressures.

To give you an idea of the scrutiny that the Fed faces in crafting their language for their statement you may want to check out this article from Marketwatch. Maybe they should begin hiring English Majors instead of Economists for this task…..

Current Outlook: neutral