Central Bank Cuts Key Rate

By Caleb Wentz

On Tuesday September 18, 2007 the Federal Reserve cut interest rates by a half percentage point for the first time in four years from its previous 5.25% to 4.75%.  This is also the biggest move in the last five years by the Fed.  This in effect, will lower borrowing costs for investors.  One of the main reasons for the cut is the housing market.  Many analysts believed that the Fed was only going to cut the rate a quarter-point, but a few believed and hoped that they would cut it the half percentage point.   The Fed was concerned that the housing market was going to drag the whole economy down with it causing a recession.  Currently the housing market is at a 12 year low.  This last July it was down another 4.5% from last year. 

There are several good things that have come out of the Fed’s decision to lower the interest rate.  The first was the stock market jump.  The Dow Jones Industrial Average jumped almost 3% after the Fed released its information to cut interest rates.  This is the biggest jump in the stock market in five years. 

Some other things that will be affected by the Fed cutting the interest rates will be good for people.  With the lowering of interest rates, this will also lower mortgage rates, home loan rates, credit card rates and also auto loans.  According to one analyst with this cut we have unfrozen the credit market and borrowing has started again and it will now be easier to get a bank loan.  The hope of the Fed is to make it easier for people to get loans and in return be able to purchase homes, which will help stimulate growth in the economy.  If you have an adjustable mortgage rate, this is a good thing because it is going to lower your interest rate.

Another area affected by the interests being cut was oil prices jumped to an all-time high.  Lower interest rates have been known to provoke demand for raw materials such as oil, gold, and copper.