Fed funds rate unchanged

The Federal Reserve Tuesday decided to leave its benchmark interest rate unchanged at 2 percent.

In its statement, the Fed said that prior interest rate cuts and other steps the Fed had already taken to help the financial markets should strengthen the economy and "promote moderate economic growth." The Fed also said it would carefully monitor economic and financial developments and raise or lower interest rates further to promote economic growth, counteract inflation and stabilize prices.

The Fed’s decision comes during a time of turbulence in the financial markets, including the collapse of  Lehman Brothers, a major investment bank, and the acquisition of Merrill Lynch, another major brokerage company, by Bank of America.

The good news for borrowers is that consumer interest rates overall have dropped significantly. Interest rates on conventional mortgages fell last week after the federal government stepped in to help Fannie Mae and Freddie Mac, the country's two biggest mortgage companies. Interest rates on jumbo mortgages also fell.

Lower interest rates translate into lower monthly payments for borrowers. Home buyers who take advantage of lower interest rates can borrow more money for the same monthly cost. Homeowners who refinance an existing mortgage may be able to save substantial amounts of money on their monthly mortgage payment by locking in a lower interest rate.

There's no guarantee that interest rates on home loans will stay as low as they are now. Indeed, borrowers could see higher interest rates on consumer loans in the future, even if the Fed doesn't raise bank interest rates. That means prospective borrowers who've been waiting on the sidelines for lower interest rates may want to act now.

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