18 Feb 10 Fed Hikes Discount Rate and Mortgage Rates Rise
Mortgage Rates Pulse announced that the Federal Reserve increased the discount rate today and mortgage rates rose almost immediately. This is the rate at which banks lend to each other. When banks stopped lending to each other overnight altogether in the fall of 2008, discount window for home mortgage loans became even more crucial. The Fed even narrowed the penalty banks paid for using discount window money, moving the discount rate closer to the Federal funds rate during the crisis.
According to mortgage executive, Bryan Dornan, “Clearly, the Fed is signaling a change in direction for interest rates.” Dornan continued, “Now that the Fed is raising rates, expect mortgage rates to begin retreating upwards.” Now that the crisis has blown over, the Federal Reserve wants things to get back to normal.
Late Thursday afternoon, it surprised the markets by raising the discount rate it charges though its emergency window to 0.75% from 0.50% while keeping its targeted Federal funds rate at between zero and 0.25%. The change will take effect on Friday. Meanwhile, the duration of the mortgage loans will revert to the normal overnight period from 30 days come mid-March. Though many thought the Fed was headed in this direction, most everyone thought it wouldn’t act until its next Open Market Committee meeting next month. See the original post online at > Fed Reserve Raises Interest Rates.
