Fed Raises Discount Rate – Official Funds Rate to Follow?

The US Federal Reserve caught the market somewhat by surprise when it raised the Discount Rate to 0.75 percent from 0.5 percent earlier today. The Discount Window is typically seen as a “lender of last resort” to financial institutions requiring access to emergency capital. A change in the Discount Rate does send a strong signal that the Fed is preparing to change its monetary policy, but the Federal Funds Rate – the benchmark rate that influences retail interest rates – remains unchanged at 0.25 percent.

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

The change in monetary outlook propelled the dollar to its highest level in a month at 92.10 yen, while the UK pound was trading at $1.5414.

Source: BBC News

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