My Interest Rate DIDN'T Drop?

Yep, this was the question of the weekend. With the unexpected, but largely appreciated, reduction in the Discount Rate by the Federal Reserve on Friday, the markets cheered and most of the major indicies recovered nicely from the previous week's plummet.

I had several conversations like this over the weekend, and here is the answer: the Fed cut the Discount Rate, not the Fed Funds Rate. What's the difference?

So, in addition to my porfolio moving back up a bit, I'll get a .5% decrease in my bank loan, right?

Nope.

No? Why not!?!?!?

• The Discount Rate is the rate at which banks can borrow money from the Fed. The interest the Fed charges the bank is called the discount rate.
• The Fed Funds Rate is the interest rate at which private depository institutions loan funds to other depository institutions overnight.

Over the recent past, the Discount Rate has been 1% higher than the Fed Funds Rate. Now, with the Fed's move last Friday, that differential is only .5%.
Who cares? Well, you do. The PRIME INTEREST RATE is based off the FED FUNDS RATE; consequently, since the Fed Funds Rate was unchanged, so is the Prime Interest Rate. The current Fed Funds Rate of 5.25% + 3.00% margin (or profit) = the Prime Interest Rate.
There are a more than an handful of economists who believe the Fed will follow Friday's action with a reduction in the Fed Funds Rate at some point in the near future, but for now, you're stuck with the same rate you had prior to Friday's announcement.

-go figure-