Ok.  The Fed lowers the prime and discount rate to help the economy.  Does this help or hurt interest rates? 

Interest rates are effected a lot by inflation.  If inflation increases, then mortgage rates will increase.  When the Fed lowered the rates they charge to banks to borrow money from the Fed, this effected variable credit card rates, business loans, home equity lines of credit, etc.,  not mortgage rates that are based on Mortgage Backed Securities that trade on the Bond Market.  If we see consumers carrying on more debt through home equity lines of credit, and lower interest rates on car loans and credit card bills, this could add to some of the inflation concerns, but probably not enough to make a difference.

The real concern is what this has done to the US dollar.  The Dollar has dropped to new lows against the Euro and dropped below the Candanian Dollar for the first time in 30 years. 

What does the weakness in the US dollar mean to inflation and, consequently, mortgage rates?  Well, the lower the US dollar goes compared to foreign currencies the more it costs Americans to purchase foreign goods, and lord knows, we buy a lot of foreign goods.  An increase in the price of foreign goods equals and increase in…you guessed it….inflation, thus, causing an increase in mortgage rates.