The Fed rate and the 30 year fixed rate

By
Mortgage and Lending with Lennar Mortgage NMLS 217128
I am constantly asked by my clients how the 30 year rate is affected by the short terms moves made by the fed lowering the discount rate and I find it to be a difficult question to answer effectively. There is no instant direct correlation between the discount rate and the 30 year rate, they move independently, but often in the same direction. The 30 year rate is an indication of out economy’s strength and the rate of unemployment. Because the discount rate is often lowered to stimulate economic activity during times of high unemployment and economic struggle, the two rates often move similar directions. There is no rule of thumb when it comes to the day the discount rate is lowered. I have seen times where the fed has lowered the rate and the 30 year has gone up, and times the 30 years has gone down. The fact is, the 30 year rate is a reflection of the overall market and the health of our economic production. Because the fed rate or discount rate is an core element and part of our economy’s fabric, it will have an impact, but because the market is composed of an almost unlimited amount of factors, it is truly unpredictable what instant affect the discount rate will have at any given time that it is lowered. I hope my incite had provided some clarity.

Comments (1)

Bryce Fuller
Coldwell Banker Residential Brokerage - Northbrook, IL

Great Post Joe!

Thanks for breaking it down for us folks who don't know anything...

Bryce

Jan 29, 2008 01:39 AM