Wall Street rally Wednesday with Dow Jones jumped almost 200 points after new data showed the overall economy is holding up but isn’t too strong to prevent the Federal Reserve from cutting interest rates. ADP Employer Services said 189,000 jobs were added during the month – an increase that bodes well for consumer spending. The report raised hopes for a strong November jobs report from the Labor Department on Friday.

Some investors are even bold enough in betting the Fed will go beyond the generally anticipated quarter percentage point cut and lower rates by a half point. The market is currently pricing in a rate cut next week. Supporting the case for a cut is that central banks globally seem to be open to the idea, a trend that would give the Fed even more room to move – reported AP.

Meanwhile the Bush administration has hammered out an agreement to freeze interest rates for certain subprime mortgages for five years to combat a soaring tide of foreclosures. The plan would apply to borrowers with loans made at the start of 2005 through July 30 of this year with rates that are scheduled to rise between Jan. 1, 2008, and July 31, 2010. It is aimed at homeowners who are making payments on time at lower introductory mortgage rates but cannot afford a higher adjusted rate.

The administration plan is designed to deal with the crisis by letting subprime borrowers who are living in their homes and are current on their payments to avoid a costly reset for five years. The hope is that by that time the housing downturn will have stabilized. Under the typical subprime loan those offered to borrowers with spotty credit histories – the rates for the first two years were at levels around 7 percent to 8 percent. But after two years, those rates were scheduled to reset to levels around 9 percent to 11 percent. Let’s hope all ends well.

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December 6th, 2007 by financetwitter

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