One Day At A Time

Change is occuring right now—change that is worth taking a closer look at. The Fed has increased the discount lending rate.

The Lowdown on the Change: It wasn’t much of a shock to anyone when it happened late last week. What happened is really quite simple. The Federal Reserve, as a lending institution, charges an interest rate to banks when they borrow money. The Discount Rate is a special lending mechanism of the Federal Reserve, which is designed to lend money to member banks on a short-term basis. If you would like to read more please visit Team Jodi to get more from this article. This discount lending rate took a steep dip during the crisis in order allow banks to borrow easily and stabilize once again. The current increase in the lending rate brings it to 0.75%, a marginal increase, but one with some implications.

What it Means: Let’s interpret this financial news into some financial forecasting. Lending rates are to the economy like barometers are to the weather. Here are several possibilities of what the increased lending rate could be a forecast of.

The economy is getting better: The Fed itself commented that their change was due to “continued improvement in financial market conditions.” When times our tough, lending rates go down. View more of this article at www.teamjodi.com on the blog section. When times improve, lending rates move back up to normal levels. The increased lending rate reflects a modest improvement in the market as a whole. Jim Enright with The First Financial Mortgage Company commented that “it is a sign that either the economy is improving or that the taxpayer bill…is being reigned in.” Either of those are good options, and this is one likely interpretation for the increase.

Thinking about buying? Do it now: If you’re a first time homebuyer, you have zero reason to wait around. For one, there is no guarantee that the generous first time homebuyer tax rebate is going to be around after April. Secondly, there is no guarantee that interest rates are going to stay as low as they have been. Furthermore, as the market warms up this spring, your house options will begin to decline as other homebuyers and investors start purchasing homes.

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