The Discount Rate is the interest rate the Fed offers to member banks and thrifts who need to borrow money to avoid having their reserves dip below the required minimum. The higher the discount rate, the higher mortgage interest rates will be. When the discount rate goes up, the prime rate goes up as well, which slows the demand for new loans, and cools the housing market.This evening, the Fed waited until the markets were closed to raise the rate from .25 to .75
Just what we need, a cooling off of the housing market, eh?
Prime Rate is the interest rate offered by commercial banks to it’s most valued corporate customers. The prime rate is also the basis for many mortgage programs, including Heloc’s (Home Equity Line of Credit), which many banks offer to homeowners at prime plus X amount, prime minus X amount, or simply prime plus zero. The prime rate always adjusts according to how the Fed changes the discount rate.
The Federal Funds Rate is what banks charge one another for overnight use of excess reserves. Banks avoid dipping below their required percentage of money on reserve by borrowing from one another. Currently its 3.25%
The Fed uses the federal funds rate to control the supply of available funds, essentially controlling inflation. If the federal funds rate is low, banks will be keen to borrow from one another, using the reserves to grant more loans which in turn feeds the economy. If the Fed feels the need to slow things down, they will simply raise the federal funds rate, which will curtail borrowing among banks and reduce the amount of new loans.
Fed Funds rate is currently at 0.25
My only question is this… Does President Obama have relatives that were Georgia Peanut Farmers? Is there an alcoholic brother billy lingering somewhere in Hawaii that we don’t know about? Because this is looking a lot like 1976 America, with a nasty thing called Stagflation.. High inflation with low growth and high unemployment. If you are too young to remember what that’s like, go on YouTube and watch some old episodes of Good Times, Hawaii 5-0, Barnaby Jones, or the 6 million dollar man. Those shows ruled back in the 70’s. You will get a sense that all in all its not much fun to be in Stagflation..
It looks like we have another intelligent, well meaning but inept president in office, ala Jimmy Carter 1976. I know the Dems have re-rehabilitated Jimmy, and all in all I think he is a brilliant, compassionate, smart man. However, he was a so so President who was hamstrung with a mess in Iran… Hmmm… come to think of it… that mess in Iran continues 30 years later….
Anyhow… if the stock indexes hold up here, after a rate hike, which is traditionally bearish fundamentally for stocks, then we could be looking at a healthier market than common public opinion would suggest. I would look for money that has been sidelined to come rushing back into the market if we get through the 11000 resistance.
Perhaps the economists are right and we are technically out of “recession”. I believe I read several economists ( the dismal scientists) who felt the we have technically been out of recession for about 4 months… Of course, unemployment is still double digits, but the economists are employed, and they feel that it may be a jobless recovery. If there every was an oxymoron, that phrase would have to be one.
As for the grains, we still have record shorts in Wheat, and 53K longs in the corn. If we get a continuation rally in the dollar, that would suggest further downside risk. I’d look to sell rallies, positioning oneself for a capitulation bottom. When that is over, then we can look to the future for higher prices in corn.
Soybeans will be in a volatile 2 dollar trading range, until we get through the March 31st planting intentions report. At that time, we should have a more clear understanding of the supply/demand picture. Brazil will be done harvesting and sooner or later China will tip its hand regarding future grain purchases.
Good Trading
