Fed Surprises Market, Cuts by 50bp

The Federal Reserve Board surprised the market late Wednesday, cutting short-term rates by 50 basis points -- instead of the anticipated 25.The yield on the 10-year Treasury (which mortgages are pegged to) fell to 4.035%, down 0.04%. The target federal funds rate now stands at 1.25%, a four-decade low. Douglas Duncan, senior economist for the Mortgage Bankers Association of America, had originally forecast a 50 bp cut, but recently trimmed it to 25 bp. Before the Fed made its decision, Mr. Duncan told MortgageWire that, "It's not like our members need a rate cut." In cutting rates, the Fed also shifted to a "neutral" stance on rates. The MBA says refinancings are running at about 70% of applications. The trade group is forecasting residential production of $2.4 trillion this year and $1.7 trillion next year.