Last evening the Fed raised the discount rate. Big deal? Well, only if you believe in history. But, one has to ask...is it different this time around? And, if you believe so...and you believe the Fed and their notion this is just a 'one off' event, then the Fed Funds shouldn't be touched. But what about the futures market? It seems the FF futures aren't buying it, and the hysteria over this preliminary move forced a 'shoot first, ask questions later' response. You can see below the futures market sold off a bit. Harsh reaction? Initially, it could be...we'll have to see over time if these contracts continue to dip.
The discount rate is a measure only considered if banks are not lending to each other. It is the 'penalty rate' from having to go to the Fed window and is really not used much in practice. For all intents and purposes this move should be considered a 'closing' of certain emergency measures that were brought about from the financial crisis.
Tag >> Discount Rate
