Fed Discount Rate Lowered - Frees Up Money
Mortgage News from Quicken Loans
This morning the Federal Reserve (Fed) announced that it lowered its discount rate by 50 basis points to 5.75%. The discount rate is the rate at which the Fed lends money to banks for short term, which it also extended to 30 days with today's announcement. This is different from the Fed Funds rate, which remains at 5.25% for the time being. Unlike the discount rate, the Fed Funds Rate is the rate at which banks lend to each other overnight.
In making its decision, the Fed said the action was taken in response to deteriorating market conditions, constricted credit and continued uncertainty in the financial markets. The Fed is hoping to inject liquidity into the market and stop the tightening that has had a stranglehold on the mortgage industry for weeks.
Quicken Loans Chief Economist Bob Walters says the Fed's actions are welcome, if not long overdue.
"Today's Fed decision to lower its discount rate is a positive sign that the central bank has finally opened its eyes to the current condition of the markets," Walters said. "While I'd much prefer to see action taken on the more impactful Fed Funds Rate, this intermediary step does have the potential to help restore some normalcy to the markets.
"What's most interesting about today's actions, more so than the lowering of the discount rate, is that for the first time the Fed has admitted the market is in turmoil. I think we can expect them to take a more hands-on approach should the markets continue to deteriorate," Walters said.
This article is reprinted by permission from Quicken Loans © 2007 Quicken Loans Inc. All rights reserved.
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