Friday, August 17, 2007

Fed Cuts the Discount Rate to 5.75%

Not that this was entirely unexpected (though I read plenty of self-assured speculation that Bernanke would hold out--for a while, at least). But still.

With risks to the economy from financial market turbulence rising "appreciably," the Federal Reserve on Friday lowered the rate it charges banks on loans they receive from the Fed's discount window, though it opted not to cut its primary policy tool, the federal funds rate.

The Fed's decision to lower the discount rate and ease the terms of discount borrowing but not to cut the fed funds target suggests that for now it believes the problems in the markets are mostly related to the availability of cash, not the price of cash. (Read the Fed's statement.)

One wonders if (and when) the interest rate might be treated similarly, and how long it will be before the nasty I-word fully rears its head. Economic reporters may be great looking--some even earn nicknames like The Money Honey--but economic realities tend to be rather less attractive, at least in the opinion of this observer.

Also at Ezra's.

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