Q+A: The Fed's big interest rate cut

After months of turmoil in credit markets, whispers of a U.S. recession in recent weeks and panicked trading on global markets Monday, the Federal Reserve cut key interest rates Tuesday by three-quarters of a point -- the biggest one-time cut since 1991. The Federal Funds rate, which is charged on overnight loans to banks, is now 3.5 percent.

Q How does a rate cut help the economy?

A By lowering the cost of borrowing for banks, lenders theoretically can pass along those savings to business customers and consumers. As importantly, the Fed's big rate cut signaled a willingness to take dramatic measures to restore confidence.

Q What impact will it have on mortgage rates? Will it curb foreclosures?

A The Federal Reserve's overnight federal funds rate is not directly linked to long-term mortgage interest rates. However, the Fed's rate cut will help people with short-term and adjustable-rate debt tied to benchmarks like the prime rate. So rates on "piggy-back" second mortgages and home-equity lines of credit will drop. Lower rates on that debt could help lower default rates.

Q What about credit card and other consumer rates?

A These interest rates drop, but not a whole lot and not fast, and not for all borrowers. For example, those who have put themselves in high-risk categories -- such as being late with payments -- will likely not see rate relief.