04/02/2010
UPDATE:Fed Monday Meeting Not Indicative Of Discount-Rate Move
WASHINGTON (Dow Jones) - The U.S. Federal Reserve said it would discuss the interest rate it charges banks on emergency loans at a regular meeting of its Board of Governors on Monday, but this likely shouldn't be taken as a sign the discount rate will rise next week.
Although the announcement from the central bank late Thursday led some analysts Friday to speculate that a discount-rate increase is around the corner, the meeting probably isn't indicative of that.
The Fed said its board, which has the power to set the discount rate, will meet Monday at 11:30 a.m. EDT (1530 GMT) in Washington. The board meets regularly, typically every other Monday, but that didn't stop some analysts from speculating that a discount-rate increase was coming.
"With markets closed in Europe on Monday and a holiday-induced light trading session in the U.S., the Fed is well positioned to increase the discount rate without causing too much collateral damage in global financial markets," said Joseph Brusuelas of Brusuelas Analytics.
However, the Fed's board has held several regular meetings at which members have discussed the discount rate that didn't result in any change.
As an incremental step away from its emergency-lending efforts, the central bank raised the discount rate by a quarter point to 0.75% on Feb. 18. The rate had been lowered aggressively early in the financial crisis to give commercial banks added incentive to come to the Fed for money.
After raising the discount rate in February, the Fed stressed the move doesn't mean that broader loans to companies and households are also about to increase.
The central bank also said it would assess "over time" whether further increases in the spread between the discount rate and the more broadly important federal-funds rate--or the rate banks charge each other for overnight loans--would be needed. The upper range of the fed-funds rate stands at 0.25%.
Now that financial markets have healed, the Fed wants to encourage banks to rely on private funding for short-term credit and use its discount window only as a backup source of funds.
The central bank said Feb. 18 it would make its next discount-rate decision based on the "view of its experience with the 1/2 percentage point spread."
http://www.advfn.com/news_UPDATE-Fed-Monday-Meeting-Not-Indicative-Of-Discount-Rate-Move_42245982.html
