Rate Cuts Not Trickling Down

Allentown Morning Call (PA) (03/03/08); Benjamin, Matthew
The federal-funds rate presently stands at 3 percent; and although the Federal Reserve has lowered the benchmark by 2.25 percentage points since September, interest on consumer loans have barely budged. Bankrate.com reports that the average 30-year mortgage rate of 5.88 percent is down just 12 basis points since September, while the jumbo loan rate of 6.82 percent slipped only 20 basis points over the same period. Experts say tighter underwriting, inflation concerns and the absence of a secondary market, which makes it difficult for lenders to pass on risks, are responsible and will make it tough for the central bank to stimulate consumer spending. "Those transactions won't happen, and that missing activity is the missing economic growth," says Credit Suisse Group chief economist Neal Soss. "So the Fed will have to do more than otherwise to compensate." Additionally, borrowers face higher interest rates due to new fees imposed by the government-sponsored enterprises.