Fed Officials Tell Markets It Isn't Tightening Broadly
Federal Reserve officials stepped up efforts to assure markets that a Thursday increase in the discount rate, an interest rate it charges on emergency loans to banks, wasn't a signal that the central bank was trying to tighten credit more broadly.</br></br>Stock-futures and credit markets initially reeled late Thursday when the Fed announced it was boosting the rate to 0.75% from 0.50% Thursday. But the stock market edged up Friday, with the Dow Jones Industrial Average rising 9.45 points to 10402.35, and prices for 10-year Treasury notes climbing, while their yields fell to 3.78%.</br></br>"We made a very small technical change," Federal Reserve Bank of New York President William Dudley said Friday during a question-and-answer session after a speech in San Juan, Puerto Rico. "The action yesterday [Thursday] was really an action about the improvement in banks." These institutions no longer need the emergency source of cheap funding as they did during the depths of the financial crisis, he said.</br></br>The Fed described the Thursday move as a step toward "further normalization" in its emergency-lending programs initiated during the worst of the financial crisis. It follows the lapsing of unusual lending programs put in place during the crisis, such as one offering short-term loans to blue-chip companies.</br></br>Officials chose to announce the discount-rate increase between scheduled meetings of its policy committee in part to underscore the clear separation between this move and the move--still in the future--to lift more economically significant rates, according to Fed insiders.