In a rare intra-meeting move, the Federal Reserve increased the Discount rate .25% to .75% late yesterday afternoon. The Discount rate is the rate the Fed charges a bank for an emergency loan. This move was done to wean the banking system off of government credit and encourages them to borrow from private sources. The governing body cited improvement in the financial sector as the reason for the increase. Since the financial crisis started, the Federal Reserve has made unprecedented moves to stabilize the banking system and the economy.
This move does not affect the Fed’s main policy tool, the Federal Funds rate, which remains at -.25%. The fed funds rate is the rate one bank charges another for an overnight loan. This is the rate that influences business and consumer interest rates. The Fed reiterated the fed funds rate would remain near zero for “an extended period”, which means at least a few more months.
Although the mainstream media has had a field day with “the sky is falling” scenarios, mortgage rates will not and cannot go up anytime soon. One just need to look at the unemployment numbers and tight credit supply to realize that the housing market isn’t rebounding anytime soon. Without a housing turnaround, the economy can’t rebound as quickly as the government hopes. Expect rates to remain low for the remainder of 2010 and I wouldn’t be surprised if they remain low into 2011 as well.
- Fannie Mae’s HomePath Program: 3% Down, No PMI, No Appraisal, and a 3.5% Incentive
- The Housing and Affordability Plan
- Understanding the Home Buyer Tax Credit
- When Will Your Home’s Value Return to “Normal”?
Gregg Harris has written 16 articles on LenderCity
