Fed Raises Discount Rate; Fed Funds Rate Unchanged (to 0.75% from 0.5%)

FOXNEWS ^ | 2/18/2010 | Tom Granahan

[TSgt]

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

[Onerom99]

I agree.. This process shoulda been done a long time ago. There’s alot of economic imbeciles on this forum.

[C19fan]

If I am reading the Fed data right Treasuries has gone up from $474 billion a year ago to $776 billion. Also, the Fed buying other securities has enabled banks and the like to stock up on Treasuries; replaceing crap with Treasuries.

[maine yankee]

I agree.. This process shoulda been done a long time ago. There’s alot of economic imbeciles on this forum.

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FLATTERY WILL GET YOU NOWHERE

[sanchmo]

Interesting.

In real eocnomic terms, this doesn't have much of an actual mathematical impact, since there is very little borrowing going on at the discount window anyway. When the M1 multiplier is below 1, there isn't much need for banks to go to the discount window. After all, why would banks borrow at 5% when (a) they have massive excess reserves and (b) they are getting paid interest to keep the reserves sitting around? It seems like the combination of Fed balance sheet expansion & interest on reserves was intended from the start to allow deleveraging to take its course across the entire economy while still guaranteeing banks some level of risk-free cash-flow - in other words, not a Friedman helicopter drop but a Bernanke cruise-missile aimed at the balance sheet of financial institutions.

The next week or so will be all about market perception. PPI was higher than expected today but not extraordinary, and the especially high crude goods segment can be noisy, so it doesn't necessarily mean a big trend by itself, although CPI might reinforce it tomorrow. On the other hand, the multiplier hit another record low recently, M2 & MZM have been flat & somewhat down, and M1 is threatening to turn lower.

[Toddsterpatriot]

If I am reading the Fed data right Treasuries has gone up from $474 billion a year ago to $776 billion.

On October 10, 2007, the Fed held $779.6 billion in Treasuries. Looks like we're down a bit since then.

[steve86]

Dow futures down 61.

[b4its2late]

Well I work in a financial institution and we have allot of excess funds which I would rather loan out than invest. Shorter Term rates for CD’s and Treasuries are at all time lows and continue to slide because other banks don’t need the funds since they aren’t loaning it out. Maybe I am all wet, but in my part of the world, that is what I see.

[uscabjd]

What effect, if any, on mortgage rates?

[101voodoo]

READ THIS AND TAKE NOTE OF THE HAPPY FACE THEY PUT ON THIS. IF THEY MENTIONED IT ONCE THEY MENIONED IT 3 TIMES, HOW THIS WILL IN NO WAY EFFECT INDIVIDUAL BORROWING COST, HOW THE ECONOMY IS RECOVERING (THAT AT LEAST TWICE)THIS OBVIOUSLY CAME RIGHT FROM THE WHITE HOUSE TO YAHOO. ************************************************************

Fed bumps up rate banks pay for emergency loans Fed raises banks' emergency-loan rate to 0.75 pct; won't directly affect consumer borrowing

"The central bank said the action should not be viewed as a signal that it will soon boost interest rates for consumers and businesses."

"The Fed did extraordinary things from keeping the economy imploding during the crisis," he said. "Now that that danger is gone, the Fed can take away some of those supports."

"The economy is growing again, and financial conditions have improved. But unemployment is still near double digits, and demand for loans remains weak. Many ordinary Americans and small businesses have found it difficult to borrow."

http://finance.yahoo.com/news/Fed-bumps-up-rate-banks-pay-apf-4141548450.html?x=0&.v=3

[politicket]

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

That's true - one of the few times that we agree. ;-)

In all seriousness, how do you expect them to offload all of the MBS and agency debt that they've accumulated?

[traderrob6]

Love ya FF but soooooo naive.

[ReformedBeckite]

So we can expect Obama and his gang, in a month or two, to be bragging about how the economy is approving by looking at the incredible increase of houses that were sold, When in reality it will be a small increase that will probably retreat the next month.

[Toddsterpatriot]

That's true - one of the few times that we agree. ;-)

Stop posting errors, we'll agree more often. :^)

In all seriousness, how do you expect them to offload all of the MBS and agency debt that they've accumulated?

Slowly.

[1066AD]

Consumers can’t get credit cards.

In the last month or so I've started to again receive unsolicited credit card offers tho' only one or two a week.

[politicket]

Slowly.

To who? Reverse repos won't solve things.

The Fed bought the toxic waste at overinflated prices. Nobody is going to volunteer to buy it at those same prices - unless major inflation takes place, which I don't see happening.

[Toddsterpatriot]

To who?

Willing buyers.

The Fed bought the toxic waste at overinflated prices.

I guess it's good that they have a low cost of funds.

Nobody is going to volunteer to buy it at those same prices

So what? Why can't they sell them cheaper? And they aren't in a huge rush to sell, so wait a few years.

[blam]

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

That's what I'm thinking. Someone saw something that 'spooked' them.

Higher inflation is all I can guess.

Buy real stuff, land, gold, silver and etc.

[politicket]

So you probably agree with the increase in the Discount rate?

[Toddsterpatriot]

I don’t have a problem with it. The Fed is only lending $14.2 billion at the Discount window now. It’s a tiny issue.

[Mengerian]

Here’s is a headline from a Wall Street Journal online report (posted on WSJ online at 5:51 pm EST).

“PRECIOUS METALS: NY Gold Falls Afterhours Following Fed Move”

http://online.wsj.com/article/BT-CO-20100218-718350.html?mod=rss_Commodities