{"id":516479,"date":"2010-04-05T15:49:30","date_gmt":"2010-04-05T19:49:30","guid":{"rendered":"http:\/\/blogs.wsj.com\/economics\/2010\/04\/05\/a-closer-look-at-markets-discount-rate-drama\/"},"modified":"2010-04-05T15:49:30","modified_gmt":"2010-04-05T19:49:30","slug":"a-closer-look-at-market%e2%80%99s-discount-rate-drama","status":"publish","type":"post","link":"https:\/\/mereja.media\/index\/516479","title":{"rendered":"A Closer Look at Market\u2019s Discount Rate Drama"},"content":{"rendered":"<p>Traders have been huffing and puffing for several days now that the <strong>Federal Reserve<\/strong> might choose today to increase the rate it charges on emergency loans to banks, commonly known as the discount rate. The Fed didn\u0092t do so. But this never should have been much of a worry to investors in the first place. Here is why:<\/p>\n<ul>\n<li>1)  Fed loans from its discount window were down to $7.6 billion in late March from more than $100 billion at the height of the crisis. At current levels, loans directly from the Fed to commercial banks amount to about 0.06% of the total liabilities of the commercial banking sector. If the Fed raises the interest rate it charges on these loans from the current charge of 0.75%, it won\u0092t have much impact on broader credit market conditions because the Fed isn\u0092t providing as much direct support to banks through these loans now that the crisis has waned. Fed officials have said this repeatedly in the past few months, but investors seem not to be paying much attention. <\/li>\n<li>2)  The Fed\u0092s more important lever for managing interest rates is the federal funds rate, which is a rate banks charge each other on overnight loans. One might infer that an increase in the discount rate means an increase in the more-important federal funds rate, now near zero, is right around the corner. But Fed officials have said before that changes in the discount rate have no implications for their plans for the federal funds rate. They\u0092ve said it very flatly. When the Fed raised the discount rate in February from 0.5% to 0.75%, it said the increase did \u0093not signal any change in the outlook for the economy or for monetary policy.\u0094 Fed officials actually mean this when they say it. The only signal meant from a discount rate hike is that they want to make it a little less appetizing for banks to turn to Uncle Sam for emergency loans. <\/li>\n<li>3)  Fed officials are aware \u0096 and puzzled by \u0096 the bond market\u0092s odd focus on the discount rate. They don\u0092t want to surprise jumpy investors because they see the market and economy as fragile. That\u0092s why they gave fair warning before their February discount rate increase. It was flagged in minutes from a Fed meeting that appeared a day before the hike, Fed Chairman <strong>Ben Bernanke <\/strong>said it was likely a few days before that, and other officials had been talking about it before Mr. Bernanke\u0092s public comments about it. Officials are unlikely to try to sneak another one in there without given investors similar warnings.  <\/li>\n<\/ul>\n<p>The melodrama in markets about the discount rate, in other words, says a lot more about Wall Street\u0092s fragile nerves and attention deficit issues than it does about the Fed\u0092s own planning. The Fed will likely signal clearly before it wants to raise this rate again, and will likely again offer reminders that this is the wrong rate to obsess about. <\/p>\n<p><a href=\"http:\/\/feedads.g.doubleclick.net\/~at\/Ia31Pq_p0_C9H8wsdqtw5T1R0wE\/0\/da\"><img decoding=\"async\" src=\"http:\/\/feedads.g.doubleclick.net\/~at\/Ia31Pq_p0_C9H8wsdqtw5T1R0wE\/0\/di\" border=\"0\" ismap=\"true\"><\/img><\/a><br \/>\n<a href=\"http:\/\/feedads.g.doubleclick.net\/~at\/Ia31Pq_p0_C9H8wsdqtw5T1R0wE\/1\/da\"><img decoding=\"async\" src=\"http:\/\/feedads.g.doubleclick.net\/~at\/Ia31Pq_p0_C9H8wsdqtw5T1R0wE\/1\/di\" border=\"0\" ismap=\"true\"><\/img><\/a><\/p>\n<div class=\"feedflare\">\n<a href=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?a=Ro8nqFPShVA:Te5j445JaoA:yIl2AUoC8zA\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?d=yIl2AUoC8zA\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?a=Ro8nqFPShVA:Te5j445JaoA:F7zBnMyn0Lo\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?i=Ro8nqFPShVA:Te5j445JaoA:F7zBnMyn0Lo\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?a=Ro8nqFPShVA:Te5j445JaoA:V_sGLiPBpWU\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?i=Ro8nqFPShVA:Te5j445JaoA:V_sGLiPBpWU\" border=\"0\"><\/img><\/a> <a href=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?a=Ro8nqFPShVA:Te5j445JaoA:qj6IDK7rITs\"><img decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~ff\/wsj\/economics\/feed?d=qj6IDK7rITs\" border=\"0\"><\/img><\/a>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"http:\/\/feeds.feedburner.com\/~r\/wsj\/economics\/feed\/~4\/Ro8nqFPShVA\" height=\"1\" width=\"1\"\/><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Traders have been huffing and puffing for several days now that the Federal Reserve might choose today to increase the rate it charges on emergency loans to banks, commonly known as the discount rate. The Fed didn\u0092t do so. But this never should have been much of a worry to investors in the first place. [&hellip;]<\/p>\n","protected":false},"author":850,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7],"tags":[],"class_list":["post-516479","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/516479","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/users\/850"}],"replies":[{"embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/comments?post=516479"}],"version-history":[{"count":0,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/posts\/516479\/revisions"}],"wp:attachment":[{"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/media?parent=516479"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/categories?post=516479"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mereja.media\/index\/wp-json\/wp\/v2\/tags?post=516479"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}