Tuesday, September 18, 2007

Fed lowers interest rates today

Fed slashes rates to boost economy

The Federal Reserve lowers the target on a key short-term interest rate for the first time in four years to 4.75% from 5.25%. Consumers should soon start feeling the impact of the Fed rate cut in the form of lower borrowing costs and stingier savings rates.

Stocks surged following the announcement, with the Dow gaining nearly 300 points, or 2.1 percent. The S&P 500 and Nasdaq both up more than 2 percent.

• Expect lower rates on home-equity lines of credit and some credit cards.
• Expect stingier money-market funds and savings products yields (decrease from 5% to 4.5%).
• Fixed-rate mortgage rates could move higher if inflation worries grow.
• Borrowers with ARM's tied to Libor aren't likely to get immediate relief.

The Fed also cut its discount rate by another half of a point to 5.25 percent.