The Fed announced a reduction in the federal funds rate, the rate at which banks lend to each other, to a range of 0% to .25%, and said it plans to keep the rate low for the foreseeable future. The Fed also said it would use “all available tools” – such as buying mortgage-backed securities to lower mortgage rates – to pull the U.S. out of a recession.
The move could be construed, Cramer said, that Ben Bernanke had finally admitted that the measures he’d tried so far to help the markets just weren’t working. It also might have been a message to President-Elect Barack Obama that the Fed chairman wants to keep his job.
Either way, now the financials and the insurers can be bought, Cramer said, as can real estate. He called the rate cuts “a stake in the ground” for investors to consider real estate-related bonds – even collaterized debt obligations on the assumption that they’ll be worth much more by this time next year. Cramer also predicted that mortgage rates would drop to 3.5%, saying that he himself expected to refinance enough to cut his monthly mortgage payment by 25%.
“This was monster,” Cramer said of the Fed announcement.
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