Discount Rate v. Federal Funds Rate

The Federal Reserve (12 regional banks who loan to other FDIC member banks) regulates US monetary and credit policies such as interest rates, amount of money available for banks, and rate of repayment from banks).

The two ways banks borrow money and provide liquidity to other banks to loan out is through (a) discount rate (what the federal reserve charges) and (b) the federal funds rate that other member banks charge and the federal open market committee (includes the federal reserve) sets.

The federal reserve also sets a “target” rate for federal funds that banks try to meet.

So is all this related to mortgages or real estate? No, not directly, but it has an impact on liquidity of banks to loan money for mortgages.  It also means the Federal Reserve has alot of control and power removed from our hands!

Source: Realty Times, August 21, 2007

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