Money Matters - Simplified

Fed raises rates for emergency loans

Washington -- The U.S. Federal Reserve Bank took a critical step in normalizing its monetary policies Thursday, raising rates for emergency loans made to banks.

The Fed raised its discount rate from 0.5 percent to 0.75 percent, a move that is not expected to affect interest rates for consumer or business loans, as would a raising of the federal fund rate, which remains at zero to 0.25 percent.

"The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy," the Fed said.

However, the Fed said it was raising the discount rate "in light of continued improvement in financial market conditions."

The move is intended to prod banks to "rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a back up source of funds," the Fed said.

Copyright 2010 United Press International

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