GOIH Global Economic Strategy: Federal Reserve Lower Discount Rate

The federal Reserve today lowered the discount rate by 50 basis points, i.e., 0.5%.

What does this mean?

It means that banks can now borrow money from the Fed at a lower rate and thereby lend at a lower rate to fund mortgages. Other consumer financing rates will be lowered as a result. As we predicted in an earlier post on: Aug. 13, 2007---GOIH Global Economic Strategy Federal Reserve Open Market Operations: Part 1 GOIH Global Economic Strategy Federal Reserve Open Market Operations: Part 1, prediction of a lower rate.


What does this mean for the mortgage market?

The discount window financing allows a bank to bring any asset to the window for financing creating liquidity for the market.