Fed Discount Rate: Surge on Wall Street thanks to federal funds rates cut

After the Federal Reserve discount rate was dropped to 5.75pct, it sparked a rally on Wall Streets as a lower Fed funds rate means cheaper borrowing costs.

Cheaper credit comes as a great relief to the financial markets as Wall Street was experiencing a credit crunch but now it appears to have recovered as mortgage stocks such as Thornburg Mortgage increased greatly. Thornburg Mortgage was up over 21% at the close of business on Wall Street.

After the Fed discount rate was cut, Wall Street soared with the Dow Jones closing at 13,079.08, a gain of 1.82% or 233.30 points.

The drop in the Federal funds rate made the NASDAQ do even better, as its gained 2.20% or 53.96 points to finish at 2505.03.

But out of the three major Wall Street Indices, it was the S&P 500 that performed the best after the Fed discount rate was cut as the index put on 34.67 points or 2.46% to close at 1,445.94 at the end of trading on Wall Street.

Many believe that the Fed discount rate cut is just the beginning and longer term interest rates need to be lowered to stop the US housing market collapsing and the financial markets on Wall Street falling further due to credit fears.

However, the further the Fed funds rate falls, the weaker the US dollar becomes. This may not worry Wall Street that much as a lower Federal funds rate and lower US dollar means US exports will appear cheaper in other countries. This will help increase business on Wall Street as US stocks get a competitive edge over business competitors overseas.

What did you think of the Fed discount rate being lowered?

How long will this Fed funds rate cut continue to boost Wall Street?

And what about inflation, won’t the Federal Reserve discount rate need to be raised to combat inflation?

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