The rate cuts will have a much larger affect on the stock market. In fact I read somewhere that of the 13 cuts made by Greeenspan only 8 were followed by a reduction in mortgage rates. The other 5 were followed by raises in the mortgage rate.
Here's from an article I saw this morning:
http://www.signonsandiego.com/news/business/calbreath/20070930-9999-1b30dean.html
Richard Yamarone, chief economist at Argus Research, calls it “the Bernanke conundrum,” the mirror image of the “Greenspan conundrum” of 2005. At that time, Alan Greenspan boosted interest rates, only to see mortgage rates drop. Now the opposite has come true.
How did this conundrum occur? In five easy steps:
The Fed slashes the federal funds rate – a key benchmark for other interest rates – from 5.25 percent to 4.75 percent, with the likelihood that more cuts may be in the offing. Many Wall Streeters predict it will be 4 percent by December.
To create the rate cut, the Fed unleashes a flood of cash onto the market, raising the specter of inflation.
Investors in long-term Treasury bills – including China and other foreign countries – say, “Whoa, dude. If inflation's gonna kick into overdrive, my T-bills are going to crash like a cement souffle.” So they start selling their Treasuries.
The sell-off in T-bills pushes the Treasury to boost the interest rate the bills offer to attract new buyers.
When T-bill rates go up, long-term mortgage rates go up, because the two typically go arm-in-arm. Et voila, the conundrum is explained.
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