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Fed Cuts Discount Rate - Effects to Savings Account Rates?

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This morning the Federal Reserve cut the discount rate from 6.25% to 5.75% in reaction to concerns about the subprime lending problems (see CNN article). It's important to note that this is not the federal funds rate. That remains unchanged at 5.25%.

The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window. As the CNN article mentions, it's largely symbolic.

In statements issued by the Fed, they have indicated that "financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward."

According to the article, expectations are now high that the Fed will cut the funds rate by at least 0.25% at their next meeting in September. Savings account rates tend to follow the funds rate, so we may soon see lower savings account rates.

Edit 9:30: Corrected discount rate numbers.


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9 Comments.
Comment #1 by SVG (anonymous) posted on
SVG
 
Banking Guy,

>>Savings account rates tend to follow the funds rate, so we may soon see lower savings account rates.<<

Indeed.

The short term rates various banks/CUs offer for their CDs/certificates tend to follow the 'FED Prime' rate.

I do expect the reaction of banks/CUs to be swift. Keep an eye on 'WSJ Prime' rate to know where the major banks are positioning their rates ...


- SVG
 

1
Comment #2 by Anonymous posted on
Anonymous
Fed Cute the "Fed Discount Rate" from 6.25% to 5.75%.

Link to AP story

http://biz.yahoo.com/ap/070817/fed_interest_rates.html?.v=33

1
Comment #3 by Anonymous posted on
Anonymous
Does "the Fed" (or the various federal reserve banks) have a webpage?


Where do these comments in the post come from?

'In statements issued by the Fed, they have indicated that "financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward."'

1
Comment #4 by SVG (anonymous) posted on
SVG
 
Anon,

Sure. The FEDs do have a web-site.

http://www.federalreserve.gov

- SVG
 

1
Comment #5 by Dilip Ramachandran (anonymous) posted on
Dilip Ramachandran
i think you made a type, the 50 basis points drop on the discount rate is actually 6.25% -> 5.75%

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Comment #6 by SVG (anonymous) posted on
SVG
 
Anon,

And the press-release FEDs have issued is at link below ===>

http://www.federalreserve.gov/boarddocs/press/monetary/2007/200708172/default.htm

I like to read exactly what FEDs have to say, rather than what the news reports generally report. That's because news reports often times are interspersed with comments / opinions of others within the bits-b-pieces of FED statement.

- SVG
 

1
Comment #7 by Banking Guy (anonymous) posted on
Banking Guy
Thanks for the note on the discount rate typo. I've updated the post with the correct rates.

And thanks SVG for the Fed's press release link.

1
Comment #8 by SVG (anonymous) posted on
SVG
 
The full like did not come thru.

Here is the link broken in 3 lines.

http://www.federalreserve.gov/
boarddocs/press/monetary/2007/
200708172/default.htm

- SVG
 

1
Comment #9 by ChrisCD (anonymous) posted on
ChrisCD
Credit Union rates may not fall as swiftly as the bank rates. They tend to be a little behind the curve. In a falling rate environment, their rates tend to stay higher longer. In a rising rate environment, they are slower to raise rates.

1