RateAPY

Fed Raises the Discount Interest Rate

Posted by: RateAPY Bank Rates News
February 19th, 2010

The writing has been on the wall for months–interest rates may have to go up. Even though inflation still appears to be under control, and unemployment still seems high, interest rates may not remain at current levels much longer. The irony is, the official position from the Fed is that interest rates should remain low for “an extended period of time.”

It was only a small surprise that, when the FOMC minutes were released earlier in the week, there was a mention of increasing the discount interest rate charged by the Fed for emergency loans to banks. What was a shock to many was that after the market closed yesterday, the Fed actually did it and raised the discount interest rate from 0.500% to 0.750%.

This action by the Fed opens the door to further rate increases and signals the end of the Quantitative Easing monetary policy. Although it is not great news for mortgage rates, it could be a positive for yields on savings accounts, money market accounts, and certificates of deposit.