Fed Drops the Discount Rate – Will Interest Rates See a Difference?

Here’s an excerpt from a commentary by Catherine Carr of New Source Financial on today’s Fed activity:

In a surprise move, the Fed lowered their Discount Rate by a half percent this morning. The Discount Rate is the rate at which the Fed lends money directly to commercial banks, credit unions and large lenders. It is different than the Fed Funds Rate, which is the rate at which banks lend money to other banks. Although the cut provides some liquidity relief for lenders, it does not directly affect mortgage rates. This cut, along with the extension of the borrowing period from overnight to 30 days, could allow time for the credit markets to settle a bit and help some large financial institutions better weather the storm. We are hoping this move will restore some confidence in mortgage securities as well. Mortgage Securities is where the loans that are funded in the next 30 days will be sold. There needs to be an appetite to buy them or we are in the same place.

Luba