- Interest Rates to Plunge Soon?
Ed Hyman, the highly respected leader of International Strategy and Investment Group, has predicted the Fed will eventually drop the federal funds benchmark rate to as low as 2%. This move will be an attempt to keep the economy chugging along! I’d say that may do the trick. ISIG is a fund with management responsibility of around $1 billion in bond funds, and Hyman has carved out a name for himself by consistently floating accurate predictions of things economic and financial, so I tend to put some weight behind his words. He’s not right all the time (he screwed the pooch in ’96 by indicating record low bond yields and temporary economic strength, both of which turned out to be incorrect), but more than most.
2%! That’s pretty interesting. How would that affect your financial decision making process? If you do have an ARM that tracks the Prime, you’ll be in for some low payments ahead, as the Prime tends to float about 3 percentage points above the federal funds rate. Many other indices will be similarly low, should Hyman’s prediction be accurate. There’ll be dancing in the streets, sure, but will this bring back some of the mortgage company’s loose credit requirements? Probably not nearly to the extent we’ve seen in the last 5 years. You can expect most lenders to require some paperwork to back up your claims of grandiose income and avarian assets.
With any luck, cooler heads will prevail. This may keep every Tom, Dick and Harriett from becoming a real estate investor, and folks may buy properties with the intent of actually living in them again!
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