Fed Ups Discount Rate

Late Thursday, the Fed unexpectedly raised the discount rate to 0.75% from 0.5%, a move it hopes will encourage banks to borrow from the private market. The Fed said the increase, the first in the discount rate in over three years, doesn’t reflect a change in monetary policy and is “not expected to lead to tighter financial conditions for households and businesses.” Despite those assurances, the news sent stock futures and bond prices down, and the dollar rose against the euro. Economists noted that the announcement of the move ahead of the normal Fed meeting reinforces how separate this spread normalization is from monetary policy.