Fed seeks to clarify discount rate move - FT

Amidst the market's nervousness and confusion over yesterday's Discount Rate adjustment, here's the Financial Times' take on what Ben Bernanke is thinking! - David

Fed Raises Discount Rate One Quarter Percentage Point

The Federal Reserve today raised the discount rate, charged to banks in need of emergency funds and often viewed as a source of last resort, to .75% from .50%.  This is a previously signalled move to start "normalizing" its participation in the markets, which has been elevated in recent months in hopes of stabilizing the economy and supporting the housing markets.  Here's the Fed's actual press release.

A more dramatic move, raising the Fed Funds rate, is not anticipated in the near future.  That rate, charged among banks for overnight loans (the very shortest end of the yield curve) in order to meet reserve requirements, will be the real signal that the Fed feels the economy is on its feet and that controlling inflation is the new priority. 

The Fed should tread VERY cautiously in this arena, as many signals are sent, with unintentional consequences not uncommon,  by raising the short-term rates directly controlled by the Fed. Mortgage rates, though not directly affected by today's move, can be expected to begin a long but hopefully slow rise. - David