• 269 days Could Crypto Overtake Traditional Investment?
  • 274 days Americans Still Quitting Jobs At Record Pace
  • 276 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 279 days Is The Dollar Too Strong?
  • 279 days Big Tech Disappoints Investors on Earnings Calls
  • 280 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 282 days China Is Quietly Trying To Distance Itself From Russia
  • 282 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 286 days Crypto Investors Won Big In 2021
  • 286 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 287 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 289 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 290 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 293 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 294 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 294 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 296 days Are NFTs About To Take Over Gaming?
  • 297 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 300 days What’s Causing Inflation In The United States?
  • 301 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

Will Fed Raise the Discount Rate Today?

Will the Fed raise its discount rate at its previously unscheduled meeting for today? Thursday's post on the Federal Reserve's website that "an expedited, unscheduled meeting of the Board of Governors of the Federal Reserve to review the discount rate" will be held today (Monday) at 11:30 ET (16:30 London/GMT). The discount rate, the rate at which banks borrow from the Fed's discount window is set by the Board of Governors, rarely used by the banks. This must not be confused with the fed funds rates, which is set by the Federal Open Markets Committee.

Fed Discount Rate minus Fed Funds Rate

Speculation that the discount rate will be raised today stems partly from the decision to schedule the meeting as recently as last Thursday. The other reason to expect a possible hike today is that 5 of the 12 district banks voted for a rate hike at the September meeting, with the hawks being the district banks of Philadelphia, Cleveland, Richmond, Kansas City, and Dallas. Will the balance be tipped in favour of a hike by New York and Atlanta?

The discount rate was last raised in February 2010, one month before the end of QE1, a program, which was followed by QE2 eight months later.

Today, the discount rate stands at 0.75%, compared to the 0.25% for the funds target. If the Fed is intent on raising rates in December by 25 bps, it could well hike the discount rate to 1.00%, thus, maintaining the differential at 25 bps. Such strategy would bring about a highly telegraphed December hike in the Fed Funds rate, thereby, more likely to reduce any upward USD shock.

A rapid USD rally should be expected from a discount hike today -- even if the rate is little utilized by banks -- but it is uncertain whether such gains would last as the impact on equity markets must also be considered. If the discount rate is held unchanged today, the odds remain well above 65% for a December lift-off. But do not forget the upcoming reports on core PCE Price Index, the November jobs and the outcome from the ECB policy meeting.

I continue to expect a December rate hike is far from accomplished, regardless of today's decision on the discount rate.

 

Back to homepage

Leave a comment

Leave a comment