FED Discount Rate
Stocks moved sideways today, confused by the FED’s move.
Bonds increased in interest rates, and have been for the past couple of week. The bond market foresaw the FED move, and was nervous about Europe and Iran.
The Dollar went sideways as did Gold.
Oil and gasoline is pointing the way right now. Oil is nearly $80/barrel, so beware of higher energy prices. Maybe it’s just the global warming caused freeze in the east that’s causing energy to go up, but I don’t think so. Naturally, I go with the speculation method of price increases.
In the news today…..
Discount Rate UP – yes, the FED raised the Discount Rate yesterday. It was raised to 0.75%. The discount rate is the interest rate that the FED charges banks who borrow money overnight from the FED in order to maintain their reserve requirements. If they have too much reserve money, they can deposit it with the FED or another bank overnight, and get paid. I wrote recently about how the FED wants to replace the FED Funds Rate with the an interbank lending rate. This is as close to that interbank interest rate as you can get. Big banks with lots of reserves will now continue to get more money – just a slight amount less – and it’s a gift from the FED. It used to be that the Discount Rate moved in tandem with the Fed Funds Rate, but no more. The FED stated this Discount Rate hike will not have any impact on your personal lending. I am skeptical, but maybe just a little leery about this announcement – I will be watching for ANY Prime Rate moves within the US because of this hike. That would affect everything.
Another thing the FED changed was the duration of their Discount Rate loans. It was always a 24 hour loan, and it was moved to 28 days when we had our economic meltdown a year ago, but has been moved back down to 24 hours again. This is a good sign that banks are a little more healthy, and can start working like they used to before our crisis.
The FED screwed up the release of this change change. They did it after hours on Thursday evening, and didn’t explain that the rate increase was “just a technical change, and not a policy change.” This communication and timing of the rate increase could have been done much better – and it spooked the stock market.
Jobless Claims – rose 31,000 jobs to 473,000 claims. This number is still way too large to suggest that we are creating jobs across the US. Also, it gives credence to the thought that the 9.8% unemployment rate is bogus.
Ken Lewis – former CEO of Bank of America has testified under deposition that he was briefed twice about the increasing losses of Merrill Lynch prior to the Bank buying that company. In other words, he knew he was buying a pig in the poke, and didn’t tell the BofA shareholders. Just another scumbag.
CPI rose – 0.2% last month. The news naturally mentions that inflation is negative “when you exclude food and energy.” ALWAYS ignore this exclusion. You know that when you live in this world, you always have food and energy in the prices you pay. So, the total CPI is the real number. Now this number is very low, but positive. This low number gives the FED time to work the problem. What problem? The problem of unwinding all those TRILLIONS that it gave out to save the world.
Here are the last numbers for today:
Dow Jones 30 Industrial – 10,402 (up 9)
10 Year Treasury Bond – 3.78% (up 0.04%)
Euro – $1.3611
Gold – $1121 (up $1)
Oil – $79.97 (up $0.94)
Gasoline – $2.09 (up $0.02)
