WOW! Fed raises discount rate!

[Swing low, sweet chariot. Comin' for to carry me home.]

don't have a link, breaking now.

[Swing low, sweet chariot. Comin' for to carry me home.]

here's the story from cnbc"

The Federal Reserve said on Thursday it was raising the interest rate it charges banks for emergency loans, citing improvement in financial market conditions.

The Fed said the discount rate would be increased to 0.75 percent from 0.50 percent, effective Friday.

"Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities," the Fed said in a statement.

"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy," it said.

[Free Trade is managed by the invisible hand.]

I am assuming that this is happening because the Fed feels enough banks have become safe from the threat of insolvency, or because the Fed feels that their policy has already had its maximum impact?

[opebo]

Hilarious. A year too early.

[Lief 🗽]

I guess Ben must have decided that 10% unemployment was "good enough."

[Swing low, sweet chariot. Comin' for to carry me home.]

This is not a material move, few banks are still using this emergency vehicle.  The move, which was telegraphed in advance, shows the Fed believes liquidity in the private equity market is starting to return.  It’s probably a trial balloon to the market that high interest rates are on the way and though stocks had a good day today, they sold of in afterhour trading the instant the news hit the wires (banks are down about 1.5%).

Personally, I would have waited until a couple of consecutive months of job growth.  But this move is simply symbolic.

[Sam Spade]

ur surprised, srsly?  I aint.

[Swing low, sweet chariot. Comin' for to carry me home.]

This is not a material move, few banks are still using this emergency vehicle.  The move, which was telegraphed in advance, shows the Fed believes liquidity in the private equity market is starting to return.  It’s probably a trial balloon to the market that higher interest rates are on the way and though stocks had a good day today, they sold of in afterhour trading the instant the news hit the wires (banks are down about 1.5%).

Personally, I would have waited until a couple of consecutive months of job growth.  But this move is simply symbolic.

fixed

[○∙◄☻¥tπ[╪AV┼cVê└]

This will look really stupid if we continue to lose jobs.

[Bo]

This will look really stupid if we continue to lose jobs.

At least Bernanke is trying to show that he does not want to repeat Greenspan's mistake of creating another economic bubble. Or is it just a show?

[phk]

This will look really stupid if we continue to lose jobs.

Look at 2001-2005. Greenspan held the Fed Funds Rate at 1% for a whole damn year and jobs creation only resumed in Dec 2003/Jan 2004.

[opebo]

This will look really stupid if we continue to lose jobs.

At least Bernanke is trying to show that he does not want to repeat Greenspan's mistake of creating another economic bubble. Or is it just a show?

In fact it is a misapprehension to blame any recent 'bubble' on low interest rates.. or rather it misses the big picture.   Interest rates have been an overused policy tool only because fiscal policy has been abandoned.  It is rather like blaming a Tylenol for a heart attack.

[True Federalist (진정한 연방 주의자)]

Before the mortgage meltdown, the discount rate had been fixed to 100 basis points above the Federal funds rate, so bumping the discount rate up to 0.75% is not a statement of normalcy.  All this did is indicate that the Fed thinks the banking system is less shaky than it was, but not yet out of the woods.  I expect that barring any new shocks to the system, we'll see the Federal funds rate at 0.25% (as opposed to the current 0 to 0.25% range) by mid-year with the discount rate restored to its usual spread (and thus at 1.25%).  I would be shocked to see the Federal funds rate return to rise above 1% by the end of the year, but getting it away from 0% is a good thing.  There's only so much that monetary policy can hope to accomplish, unless we start opening up the printing presses and start issuing some new United States Notes, and right now I think that medicine would be worse that the disease.

[phk]

Subset of Federal Reserve assets, in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to February 10, 2010. Wednesday values, from Federal Reserve H41 release. swaps: central bank liquidity swaps; MMIFL: net portfolio holdings of LLCs funded through the Money Market Investor Funding Facility; CPLF: net portfolio holdings of LLCs funded through the Commercial Paper Funding Facility; TALF: loans extended through Term Asset-Backed Securities Loan Facility plus net portfolio holdings of TALF LLC; ABCP: loans extended to Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility; PDCF: loans extended to primary dealer and other broker-dealer credit; discount: sum of primary credit, secondary credit, and seasonal credit; TAC: term auction credit; RP: repurchase agreements;


Discount window lending by the Federal Reserve (sum of primary credit, secondary credit, and seasonal credit), in billions of dollars, seasonally unadjusted, from Jan 1, 2007 to February 10, 2010. Wednesday values, from Federal Reserve H41 release.


Mortgage-backed securities held outright by the Federal Reserve, seasonally unadjusted, from Jan 1, 2007 to February 10, 2010. Wednesday values, from Federal Reserve H41 release.