Outlook for Key Interest Rates

With the Federal Reserve’s decision Tuesday to cut its key short-term interest rate a half-point to 4%, here’s a look at what may happen with other lending and investment rates in the near-term.

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Item: Prime lending rate

Current rate: 7.0%

Change since last Fed cut (April 18): --0.50 pt

Outlook: Banks immediately cut this rate after the Fed move Tuesday, so it will stay put for now. Another Fed cut in June would further reduce the prime.

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Item: Money market mutual fund average yield (seven-day)

Current rate: 4.15%

Change since last Fed cut (April 18): --0.40 pt

Outlook: Money fund yields are headed below 4% in coming weeks, thanks to the latest Fed cut. And assuming the Fed keeps rates low the rest of this year, money fund returns will stay paltry.

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Item: 1-yr. CD yield (U.S. avg.)

Current rate: 4.22%

Change since last Fed cut (April 18): --0.14 pt

Outlook: More bad news for savers: CD yields also are headed lower. Still, the rate of decline seems to have slowed since the April 18 Fed cut.

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Item: 30-year mortgage rate (Freddie Mac)

Current rate: 7.10%

Change since last Fed cut (April 18): --0.04 pt

Outlook: Mortgage rates have been flat for weeks, but rising long-term bond yields could soon put upward pressure on mortgages. Bond investors fear an economic rebound--and higher inflation.

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Sources: IMoneyNet.com, Times research