Fed Funds Rate down to 1.5% on Coordinated Rate Cuts

The Federal Reserve cut the Fed Funds Rate from 2% to 1.5% ahead of the FOMC meeting at the end of the month in a coordinated effort with the European Central Bank, the Bank of England and central banks in Canada, Switzerland and Sweden. This was to ease the economic effects of the worst financial crisis since the Great Depression.

The rate cut did not have an immediate effect, however, as markets continued to tumble across the world and the London interbank offered rate (Libor) rose to its highest levels. Libor is said to determine rates on $360 trillion of financial products worldwide, from home loans to derivatives. There are signs that Libor will ease off, but for the mean time, the target rate mechanism is broken.

In Singapore, SIBOR and SOR have eased off after spiking. For a short time, an inverted yield curve was seen on the daily domestic interbank rate, paralleling what was happening elsewhere.

inverted

When the markets stabilize, we should see things returning to their normal course of action, and that means lower home loan rates given that global interest rates are down with possibly more cuts in the pipeline.

Meanwhile, analysts say retrenchments are expected as early as December, so brace yourselves as this financial turmoil really hits home.

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