On Sunday, the Federal Reserve took a major step to protect financial markets and the economy, slashing the official money rate to 0%. This is a full percentage point cut and follows a quarter-point reduction that was made just under two weeks ago. The central bank is also injecting $700 billion into a quantitative easing program to support the economy.
The rate cut came as a surprise to economists and investors, and it’s the first time in recent memory that the Fed has cut its rate outside of its normal meeting schedule.
The Fed has made this decision in direct response to the outbreak of the COVID-19 Coronavirus in America and around the world.
In a statement yesterday, the Federal Reserve said that “The Coronavirus outbreak has harmed communities and disrupted economic activity in many countries, including the U.S.”
Stock Futures are Down
Despite the Fed taking action to protect the markets, stock futures fell during the weekend. Before market trading this morning, Dow Jones Industrial Average futures were down -4.56%, S&P 500 futures were down -4.78%, and NASDAQ futures were down -4.55%. This puts the markets in a concerning position where volatility could be just as intense as the previous week.
Last week, stocks dropped more than 20% from their previous peak, before recovering some of the losses on Friday.
Investors usually welcome lower rates, but this latest move means that there’s little left for the Fed to do to support the economy. Reacting so heavily and so early could limit the government’s ability to protect the economy in the coming months.
Mortgages Rates May See Little Change
A lower central bank rate can influence rates in the private market, but mortgage rates aren’t likely to fall drastically. They are already relatively low, and the market is competitive. Lending is affordable, although fears related to the Coronavirus could slow buying activity in the short term.
Little has changed for buyers, but homeowners interested in refinancing could take advantage of lower rates in the meantime. Mortgage rates increased slightly last week as lenders attempted to slow activity to catch up with a backlog of new applications and refinancing requests.
The current 30-year fixed-rate average is 4.120%, while the 15-year fixed-rate average is 3.350%.
Watch the Markets Closely This Week
With more volatility expected in the coming days, now is the time to watch the market carefully and avoid emotionally reactive decision making. There are still bargains to be had, both in real estate and equities, and some investors may even see value from buying in the dip.
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