Fed lowers federal funds rate. What does this mean?
The Federal Reserve System voted to reduce the federal funds rate by 1/2% today, with the rate dropping from 5.25% to 4.75%. You can view the press release here. What does it all mean? The federal funds rate, in case you are unfamiliar, as defined by Wikipedia, is the rate at which banks charge other banks to lend money overnight to keep their reserves at the appropriate level. You can learn much more at the Fed’s website.
What is their hope in lowering this rate? Basically, banks will save money and pass the savings on to you in the form of lower interest rates on loans and mortgages. Will this actually happen? That depends on a variety of factors, which I will discuss in the coming days and weeks.