In response to the troubles in the credit markets, evidenced by the large numbers of mortgage lenders jumping off the cliffs like lemmings, the Federal Reserve lowered the discount rate that it charges banks by 1/2 of a percentage point. They felt that the crisis had arrived at a point where some action by them was needed. This move should make banks more confident that capital will be available and make them more willing to make loans that could get the country, and especially the housing market moving again.
However, this move will not have the same strength of effect that a cut in the Federal Funds rate would have. This is the rate that banks use when borrowing from one another. It will be interesting to see if at its next meeting the Federal Reserve makes cuts here in an effort to further stimulate the economy. I know those of us in the housing market will welcome such a move.
In response to the Fed's move, the National Association of Home Builders issued the following press release today.
WASHINGTON, Aug. 17 /PRNewswire-USNewswire/ -- The 235,000-member National Association of Home Builders today released the following statement after the Federal Reserve Board's announcement that it is temporarily cutting its discount rate by half a percentage point in conjunction with other steps:
"The National Association of Home Builders (NAHB) applauds the Federal Reserve Board for moving to temporarily reduce the primary credit rate by 50 basis points. NAHB also applauds the Fed's move to allow the provision of term financing for as long as 30 days, renewable by the borrower, and to accept home mortgages and related assets as collateral for discount window loans to banks. Such changes reflect the Federal Reserve Board'swillingness to act quickly to help restore orderly conditions in financial markets, provide depositories with greater assurance about the cost and availability of funding, and help ease liquidity concerns that are affecting the mortgage market.
"NAHB also strongly encourages the Federal Reserve Board to continue closely monitoring market conditions to determine whether further action is necessary, including a cut in the target federal funds rate ahead of the September 18 FOMC meeting."
SOURCE National Association of Home Builders
John Elwell - REALTOR
Bill Nye Realty, Inc.
Licensed in Florida