Fed Discount-Rate Move Signals End to Emergency Steps

This article, found at BusinessWeek.com, discusses how the Federal Reserve Board's move to raise the rate charged to banks for direct loans signals the end to emergency supply of liquidity to financial markets. According to Sung Won Sohn, former chief economist at Wells Fargo, the discount rate has been a tool used to signal the future course of monetary policy. With this latest move, the Fed is signaling that future rates will more than likely go up, rather than stay the same or go down. However, in the statement released by the Fed, the move was described as a "normalization" of lending that would have no impact on monetary policy. The move will also encourage banks to borrow in private markets instead of from the Fed. To many, including Alan Ruskin, the big surprise was the timing. Ruskin believes the move was made earlier than most expected as yet another sign showing that liquidity provisions provided during the crisis are being withdrawn.