What does it mean? Most folks automatically equate a fed drop with mortgage rates, which isn't a safe assumption. This cut will affect the broader credit markets- see Mark's last paragraph from the bottom for a wrap-up of what this can mean to you directly... it's good news,but it's not an overnight game changer...

What does this mean to the commercial real estate market? It can mean plenty... Banks will free up more money to banks... this will mean liquidity to commercial loans... BF

FOMC Cuts Rates to Lowest Level on Record

Mark Lieberman, Senior Economist

FOXBusiness

The Federal Open Market Committee today agreed unanimously to cut the Fed Funds rate to a target range of 0% to 0.25%, the lowest rate in the Federal Reserve’s 95-year history.

In the statement announcing its decision, the FOMC said since its last meeting “labor markets have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined.”

The Committee added: “overall, the outlook for economic activity has weakened further.”

The unusual step of establishing a range for the Fed Funds rate took most analysts by surprise. The consensus forecast had been for a ½ percentage point cut to 0.50%.

In the 1989, the FOMC established a range of 9.50% to 9.625% for the Fed Funds rate.

In its statement, the Committee said the Federal Reserve “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability.”

Those tools, the Committee said, would mean the Federal Reserve “will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.”

The effect of these actions, would the Committee believes, bring down interest rates and unclog stalled credit markets.

The FOMC’s action means consumers will see lower rates for home equity lines of credit, credit cards and auto loans since those loans are generally linked to the prime interest rate which is set at three percentage points above the Fed Funds rate. Mortgage rates are not directly affected as those rates are tied to rates for treasury borrowings which don’t react as quickly. But the real target of the FOMC’s action was the broader financial services sector, providing more money for banks.

Mark Lieberman is the senior economist for the Fox Business Network. Prior to joining FOX, he served as first vice president and manager of economic analysis and research at Washington Mutual in New York. Before that, he served as senior vice president at Dime Savings Bank of New York (which was later acquired by Washington Mutual), where he specialized in credit and risk management. He is a member of the Executive Committee of the New York Association for Business Economics. He has a degree in Economics from the Wharton School of the University of Pennsylvania.