On Thursday, the Federal Reserve raised the Discount Rate by a quarter of a point to 0.75% effective Monday, February 22nd. The Discount Rate is what is charged to banks for using the Feds emergency lending window. The target for the Federal Funds Rate was left unchanged at 0 to 0.25%, so the move is unlikely to affect consumer and commercial interest rates.
This can be seen as another small step on the road of returning to normalcy. The fed is continuing to slowly back off the aggressive assistance it provided the financial markets in the fall of 2008. Here the fed is encouraging banks to return to the private capital markets for their overnight borrowing needs by raising the rate the Fed charges. Already announced, the Fed will also return the borrowing window back to the normal overnight period, from its temporary 30 day period, in mid-March.
The Fed stated that this move should not be taken as a sign that their view of the economy had changed or that they were tightening the money supply.
