Fed may boost discount rate

The central bank sets a Monday meeting to discuss the rate. The move is another signal that rates are going to move higher, not lower.

By Charley Blaine Apr 1, 2010 8:11PM

Is another increase in the Federal Reserve's discount rate on the way?

 

Maybe.

The Fed put out a notice today that a closed meeting will be held Monday morning. The sole item on the agenda is the discount rate, the rate the 12 Federal Reserve banks charge banks for short-term loans.

 

This doesn not mean the Fed is raising rates generally. The rate to watch is the federal funds rate, the rate banks charge each other for overnight loans. That target is now at 0% to 0.25%, a level that's been in place since Dec. 16, 2008.

 

The fed funds rate is a target. That's the rate the Fed wants, and it puts enough money into the banking system -- usually by buying securities -- to generate the rate.

 

If it wants to raise the fed funds rate, it sells securities.

 

Assuming the Fed raises the discount rate, the increase would be the second increase this year. The Fed raised the discount rate fro 0.5% to 0.75% on Feb. 18.

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