Fed Raises Discount Rate

The discount rate is the interest rate that the Fed charges member banks for emergency overnight funds in the event that liquidity is low. Though it is not advisable for banks to step up to the window too often, it is a safeguard put into place to make sure that trouble for one bank doesn't snowball and lead to more systemic issues. During down times, or times of crisis, lowering the discount rate is one weapon in the Fed's arsenal, allowing it to lend cash to banks short term without big announcements or causing panic.

Earlier this evening, the Fed decided to raise this rate to 0.75%. Though this is not directly linked to any impact on consumers, and though it is not directly related to the more well-known federal funds rate, this move could be a sign that the central bank is looking at reigning in some of the emergency measures it put into place during the worst of the banking crisis. For now, it is unlikely that this move will act as a precursor to any other Fed action, and such a move would typically only interest Fed watchers and the banks themselves. However, in the current economic environment, beggars cannot be choosers. This move is a positive signal that those most in-tune with the status of the economy believe that banks are past the danger zone, and that is a positive sign for everyone.