Fed Cuts Key Interest Rate
By Scott Sumerford on Thursday, November 1st, 2007 :: 2:57 pmCategory: Financial News
As expected, the Federal Reserve cut the federal funds rate by 25 basis points Wednesday in hopes of boosting the economy. Many factors contributed to the decision to reduce this key interest rate. In a statement, the Fed acknowledged the risk of inflation due to surging energy prices and expressed concerns about the ailing housing market.
Energy Prices
Gasoline prices continue to rise as the price of oil is over $94 per barrel, a near record high. Though gas prices are up, Exxon Mobil announced its third-quarter profits dropped 10 percent. Nevertheless, profit margins still decreased because pump prices did not increase enough to counter the cost of oil. Thus, consumers can expect the price at the pump to increase as well.
Declining Housing Market
Since the subprime collapse, demand for new homes has sharply decreased and sales for existing homes fell 8 percent in September. The sudden plunge in demand and sales indicates the housing market could be entering its worst slump in decades.
However, the cut in the federal funds rate, which affects the interest rate for home buyers, could stimulate the weak housing market. Historically, consumers are more apt to buy homes when interest rates are low. The potential savings home buyers may enjoy could also free up spending money to boost the retail industry this holiday season.
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