On Tuesday, the Fed slashed the Federal Funds Rate (the rate banks charge each other to lend money overnight) by .75% to the lowest target range in history of 0% to .25%. The Fed also lowered the Discount Rate (the rate at which banks can borrow directly from a Federal Reserve Bank) by .75% down to .50%. In the past, Bond pricing and home loan rates have reacted negatively to these types of Fed cuts due to fears that inflation will increase. But during this history making week, things were different…

First, the Fed’s Policy Statement included their intentions to purchase as much as $600 Billion of debt issued or guaranteed by Fannie Mae, Freddie Mac and other government-backed mortgage businesses in a direct effort to help lower home loan rates. Additionally and as mentioned, Fed cuts typically lead to inflation – the arch enemy of Bonds and home loan rates, but this time the Fed stated that inflation pressures have currently diminished appreciably and is expect inflation to moderate further in coming quarters. This comment rings true after seeing Tuesday’s inflation-measuring Consumer Price Index report, which showed that consumer prices dropped more in November than any other month since record keeping began in 1947. In response, home loan rates dropped to the lowest levels that have ever been seen.

In other history-making news from the week, the auto industry finally received some relief on Friday, as President Bush announced a deal that will provide GM and Chrysler with $13.4 Billion worth of government loans in exchange for restructuring. Ford has more cash on hand than the other two, and has said it should be able to avoid tapping into federal dollars unless weak auto sales continue longer than expected into 2009. While this announcement is good news for the economy and initially gave Stocks a boost, it did little to quiet the volatility in the markets…but home loan rates still closed out the week at record low levels, and improved by about .25% from the previous week.

With home loan rates at historic lows, there has never been a better time to examine your own home loan situation and plans for the future. Sometimes human nature drives people to be a little greedy and attempt to wait for even lower rates before acting…but the opportunity cost of missing the savings that could be benefited from right now – by waiting for something that may never happen – could quickly mount up into thousands of dollars.