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Fed Cuts Rates Again January 30, 2008

Posted by pf in Expenses and Savings.
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Well, not unexpectedly, the Fed cut rates again by another 1/2 point. Admittedly, I’m feeling quite pleased with myself having opened up those 2 CDs these last couple of months (Fed Emergency Rate Cut…I Made a Move). Of course, these rate reductions were not without cause, and the losses to my portfolio due to the tanking stock market quickly wipes the little smirk off my face.

So, what’s next? I suspect the Fed will pause for awhile and see what transpires. The rate reductions will take quite a few months before we’re able to determine what effect they had. In particular, there are still mixed signals about the economy (recession or no?) including upticks in inflation.

I strongly encourage everyone to watch mortgage rates. Clearly, they do not immediately move in lockstep with rate cuts. However, I do believe the historical tendency is for them to drift downward gradually after a bit. If you have the discipline, the equity, and the credit rating to do so, I think people should strongly consider refinancing their home including any outstanding debt. While I understand that there are arguments not to “tie up your house”, etc. with your debt, I can think of few things to get you on the path to recovery faster than a fixed rate of interest in the neighborhood of 5.5-6.0% over a 30 year term.

Remember, you can always pay more toward principal! The key is that it will give you both the flexibility and the stability you need to manage your debt. It may not be for everyone…but I think it may be a great option for many.

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