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Fed Raises Discount Rate; Fed Funds Rate Unchanged (to 0.75% from 0.5%)
FOXNEWS ^ | 2/18/2010 | Tom Granahan

Posted on 02/18/2010 1:39:50 PM PST by TSgt

Edited on 02/18/2010 1:48:02 PM PST by Admin Moderator. [history]

The Federal Reserve on Thursday raised its discount rate to 0.75% from 0.5%, an effort to return its lending facilities to more normalized levels.

The Fed said the move, along with other recent modifications to its credit programs, does not signal a change in its outlook for the economy or for monetary policy, and the more important fed funds rate remains in its range of 0% to 0.25%.

The Fed usually changes the discount rate at the same time it does the fed funds rate, but after the unprecedented steps taken to combat the financial crisis, the Fed is eager to start bringing rates back to more traditional levels, and Thursday’s move is a start.

Excerpt


TOPICS: Breaking News; Business/Economy; Government; News/Current Events
KEYWORDS: bernanke; discountrate; economy; fed; fedrate; thefed
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To: Ravi
related to PPI report earlier today?

Could be. They have a history of using hypothetical inflation to justify all the stupid moves they've made.

21 posted on 02/18/2010 1:47:33 PM PST by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: Moonman62

I dont believe that Bernake can squeeze the huge excess of money out of the economy by small steps like this over a long period. They also want to monetize the debt to help pay if off, so the guys at the top want inflation to some extent, but they wont be able to control the beast in the long run. It is going to be ugly.


22 posted on 02/18/2010 1:49:39 PM PST by DeusExMachina05 (I will not go into Dhimmitude quietly.)
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To: DeusExMachina05

The best way to combat inflation is with economic growth, which is the exact opposite of Fed philosophy. The big pile of money out there is not too much to worry about as long as the velocity of money is so low. Look at Japan for the past 20 years.


23 posted on 02/18/2010 1:52:34 PM PST by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: Fishface

There is a ton of savings though, which is why savings rates are down, so there is liquidity available but no one is borrowing it and nobody is spending because of the job situation.


24 posted on 02/18/2010 1:54:29 PM PST by b4its2late (A Liberal is a person who will give away everything he doesn't own.)
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To: OldDeckHand

Maybe not. I don’t know. You are probably right.


25 posted on 02/18/2010 1:55:22 PM PST by b4its2late (A Liberal is a person who will give away everything he doesn't own.)
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To: Moonman62
Gold.

If interest rates continue to rise in the forthcoming months, it should drive down the price of gold. Emphasis on “should” though; as the Fed has likely underreported inflation by 5-10% (which could be a corrector keeping gold at its current price).

26 posted on 02/18/2010 1:55:36 PM PST by Mengerian
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To: Mengerian

But you originally said the price of gold would be going down. Why would you want to buy gold if the price is going to be going down?


27 posted on 02/18/2010 1:57:58 PM PST by Moonman62 (The issue of whether cheap labor makes America great should have been settled by the Civil War.)
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To: b4its2late

Why aren’t people using their savings to stop their foreclosure?

There is no liquidity in the marketplace. Small businesses can’t get loans. Consumers can’t get credit cards. Banks are not lending.

How do you raise rates into this environment.


28 posted on 02/18/2010 1:58:25 PM PST by Fishface (teach a man to fish...he eats for a lifetime.)
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To: b4its2late
"Maybe not. I don’t know. You are probably right."

Hey, don't take my word for it. I'm just guessing too. But, I think it's only just before 0700 in Japan right now.

29 posted on 02/18/2010 1:59:14 PM PST by OldDeckHand
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To: Fishface

The Fed is crapping their drawers.

You don’t raise rates with 10% unemployment (really 20%), falling M2 money supply and multi-trillion dollar debts in a deflationary environment.


30 posted on 02/18/2010 2:00:25 PM PST by LowTaxesEqualProsperity
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To: Moonman62

I suppose I wasn’t clear. I’m not going to buy gold at the current price. I will wait for it to drop following interest rate increases - subsequently buying at a significantly lower price.


31 posted on 02/18/2010 2:03:14 PM PST by Mengerian
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To: Fishface; All

Note - this is NOT the Fed funds rate, but the discount rate.

The federal funds rate is the interest rate that banks charge other banks when lending money to them.

The federal discount rate is the interest rate that the Fed charges banks when it lends the bank money. This amount is higher than the Federal Funds Rate so it’s used as a last resort for banks needing some cash to boost their reserves.

Fed cited ‘improving financial conditions’ for raising the discount rate.


32 posted on 02/18/2010 2:03:45 PM PST by farlander (Sic Semper Tyrannis)
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To: All

Wow, the Fed really pulled a fast one here after hours.

Wall Street will not like this. The Fed Funds rate will be next, this is the warmup.


33 posted on 02/18/2010 2:05:26 PM PST by rbmillerjr (I'm praying for Palin....if not I'll support Romney : He sucks but he's better than Obama.)
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To: LowTaxesEqualProsperity

I agree. For all of the theoretical money the Fed has injected, there is no liquidity. 16% unemployment and tight lending does not produce inflation.

This move is almost sinister.


34 posted on 02/18/2010 2:07:36 PM PST by Fishface (teach a man to fish...he eats for a lifetime.)
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To: Fishface

I’m guessing the market opens down 120 then rebounds slowly, and then plummets at about 2...closing down 225...

or, as rational as the market is, it will be up 200 lmao.


35 posted on 02/18/2010 2:11:54 PM PST by rbmillerjr (I'm praying for Palin....if not I'll support Romney : He sucks but he's better than Obama.)
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To: b4its2late
"There is a ton of savings though"

Is there a ton of savings, or has there been an increase in the savings rate? I believe (although I'm no expert) it's the latter and not the former.

I think liquidity has been and continues to be problematic, not just for the economy, but for the consumer as well. Like I said, I could be wrong.

36 posted on 02/18/2010 2:14:21 PM PST by OldDeckHand
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To: MikeWUSAF

We’re doomed!!!


37 posted on 02/18/2010 2:15:39 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: C19fan
and when the Fed starts unwinding its bloated balance sheet; ie stop financing Zero’s deficits.

The Fed holds about the same amount of Treasuries they did 2 years ago.

38 posted on 02/18/2010 2:16:42 PM PST by Toddsterpatriot (Math is hard. Harder if you're stupid.)
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To: Fishface

The Bond Vigilantes have been screaming for the Fed to do something!


39 posted on 02/18/2010 2:20:00 PM PST by Ernest_at_the_Beach ( Support Geert Wilders)
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To: b4its2late

Sometime when you raise a rate like this (think home buyers that have been waiting to buy)you spur borrowing as people decide to act before they go higher. In essence you’re flushing out the buyers. We shall see if they’re out there.


40 posted on 02/18/2010 2:20:14 PM PST by wiggen (Never in the history of our great country have the people had less representation than they do today)
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