Who benefits from rate cut?

The Dow Jones industrial average jumped 420 points, its biggest one-day point gain in more than five years.

COMBINED DISPATCHES

WASHINGTON — The Federal Reserve Board’s rate cut Tuesday increased the chances that months of Fed moves could start to trickle down to homeowners in time to ease the pain when adjustable-rate mortgages reset this year. And people who borrow money to pay tuition, buy cars or cover unpaid credit card bills might eventually see some benefit.

But the Fed’s action could also revive inflation, many economists fear. By reducing the interest rate that the central bank charges financial institutions for short-term loans, the Fed makes money more readily and cheaply available. If it miscalculates, it can pump too much money into the economy, fueling excessive demand for goods, housing and capital spending — and driving up prices.

That would undermine Fed Chairman Ben Bernanke’s long-cherished notion of setting a low, narrow and predictable target range for inflation. The decline in housing prices might be tempered, but inflation would eat away at real housing values.

The threat of inflation was evident in commodity markets Tuesday. Though at historically high levels, prices for corn and copper rose on the expectation that the Fed rate cut would breathe new life into the economy and avert a drop in demand. Oil prices jumped more than $3 in New York to $109.42 a barrel.

On Tuesday the Labor Department reported that the producer price index for finished goods rose 0.3 percent on a seasonally adjusted basis in February after a 1 percent increase the previous month.

Wall Street stormed higher Tuesday as investors, optimistic after stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve’s decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Analysts said the Fed cut rates to head off foreclosures on adjustable-rate mortgages. Many homeowners signed mortgages with very low introductory rates that will reset to market rates this year and next year, forcing homeowners to make sharply higher monthly payments.

But whether the Fed action will actually lower mortgage rates isn’t a sure thing. So far they haven’t fallen as sharply as Fed rates. According to Mortgage Information Services, 30-year fixed-rate mortgages were 6.34 percent on average last September when the Fed began to cut its rates. The 30-year fixed-rate mortgage stayed flat for a few weeks, dropped to 5.48 percent in late January, then climbed again to 6.13 percent last week.