A lot is made of Federal Reserve Rate Cuts nowadays. I still get questions about it occasionally, so I though I might address a couple of them. On January 30, 2008, the Fed dropped the rate 50 basis points (1/2%) in a move that was not unexpected, setting the federal funds overnight rate to 3%, and the discount rate to 3.5%.

The federal funds rate is the rate banks charge each other for overnight loans, which the Fed can influence by easing or constricting the supply of money. The discount rate — what the Federal Reserve charges banks for short-term loans — is set directly by the Fed.

Does this mean I can get a better interest rate on a 30 year fixed loan?
Not necessarily. The Fed rate doesn’t directly effect long-term fixed mortgages. Sometimes, a fed rate cut can actually influence long term rates to go UP, which actually happened a week or so ago when they cut the rate 75 basis points in an emergency session.

Then, what does the rate cut mean for me?
If you have an Adjustable Rate Mortgage, a construction loan, credit cards, or a home equity line, then you are going to be helped out by the lower rates.