U.S. Fed Raises Discount Rate

The U.S. Federal Reserve raised it’s discount rate, the rate charged to financial institutions, from 0.5% to 0.75% in an efforts to normalize its monetary policy.The Fed indicated that the increase does not signal a change in it’s outlook for the U.S. economy and it’s key rate (the Fed fund rate) remains unchanged at 0.25%.

The discount rate is normally adjusted at the same time as the Fed funds rate and this move by the Federal Reserve seems to indicate some tweaking of its monetary policy to unwind some of the moves made during the height of the economic crisis.

Although the Fed has indicated that it has not changed its outlook for the economy, this may signal that higher consumer interest rate increases are within sight. The Bank of Canada is scheduled to make its interest rate announcements on march 2, 2010.

About The U.S. Discount Rate

The discount rate is the interest rate that is charged to banks when they require short-term borrowing from the Federal Reserve.

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