Why the Rate Cut Did Little for the Market

The Federal Reserve’s 3/4-point rate cut did little to sway the mind of Wall Street — all despite the fact that it was the largest cut in the funds rate since August, 1984. MSNBC thinks the answer is in the housing market. The uncertainty surrounding the housing sector has spilled over into all parts of the economy, and its full effects are yet to be realized, but there is little doubt in the overarching fact: Over $1 trillion in adjustable mortgages are set to spike when their term expires over the next few years.

“Large money center banks have virtually frozen their balance sheets, reluctant to lend even to good credit,” says Scott Anderson, a senior Wells Fargo economist. The only real hope is that the lower rates will inspire another flurry of borrowing, especially among consumers and prospective home buyers. Whether that will happen or not remains to be seen.

Money Doesn’t Grow on Trees image by Craig Hatfield [cc, 2.0]