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Global Axcess Corp. Message Board

  • longtimefollower longtimefollower Feb 18, 2010 5:42 PM Flag

    Fed announces discount rate increase!

    Surprises the markets, to be sure. Since when is a rate increase NOT "a tightening," by the way. The "runway" is getting clearer for when the likely first increase for Fed Funds is. I can't believe Bernanke said a mere week or two, in testimony, that a discount rate increase will be coming "before long," and that the Fed would do it so QUICKLY. Upshot: They have seen the data, the last few weeks, and they are getting SCARED that they are in danger of falling behind the curve. I'm increasingly having a hard time seeing how they could way more than 4 months (i.e. the June Fed meeting) to do their first increase in Fed Funds. Time for Fed Funds futures to "dive" tomorrow, and make back some or most of my losses, I would say.

    No doubt about it: the discount rate increase happening this soon moves up the timetable for a Fed Funds rate increase by probably at least one meeting, in the eyes of most market watchers. I say 60% they do it at the June meeting, 30% in August, and 10% at a later meeting.

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    • I should say, historically, the Fed does discount and Fed Funds rate increases IN TANDEM, or even starts raising the Fed Funds rate BEFORE the discount rate (at the beginning of a cycle of rising interest rates). But, they need to get the discount rate "ahead" of the Fed Funds rate, to get it back to a 100 basis point gap that evidences "normalized" times. Projection: They raise the discount rate another 25 basis points at the March Fed meeting, and then again at the April Fed meeting. Then raise both Fed Funds and discount rate 25 basis points at the June meeting.

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