I don't understand economics or anything

[cmeador]

but I was listening to the radio the other day and they said that the housing market is continuing to slump, and that the federal reserve chief was considering another rate cut. Okay, so I get how lower interest rates act as an incentive to buy into the market. But when the guy says "I'm thinking about lowering the interest rates again" doesn't

Comments

[igz00]

And thats why people get ARMs

of course when rates finally go back up they get screwed and end up refinancing.

[ragzilla]

The fund/discount rate cuts aren't intended to entice consumers into obtaining credit. The fed is dropping those rates to entice the banks into loaning money- one of the problems facing the market currently is a lack of liquidity due to uncertainty. Since banks are stuck holding these SIVs full of possibly bad mortgages they don't know how much money, and how much liability they have in these investments so they're holding onto more money. Giving them cheap money from the fed is supposed to help ease this up so they start lending to each other some more and "un-freeze" the market.

Thanks

[cmeador]

That makes a lot of sense, and I think I've actually heard it explained before -- I just forgot.