Exit strategy to mark better days to come

Fed hikes discount rate, says loose policy to stay

Topics:Economy, Government & Policy
The U.S. Federal Reserve Building is pictured in Washington, January 26, 2010. REUTERS/Jason Reed
On Thursday February 18, 2010, 10:13 pm
By Emily Kaiser

WASHINGTON (Reuters) - The Federal Reserve raised its emergency lending rate for the first time since the financial crisis, lifting the dollar and hitting bonds as markets brushed off Fed assurances it was not a prelude to a rise in the main policy rate.

The Fed cast its decision to raise the discount rate it charges banks by 25 basis points to 0.75 percent as a response to improved market conditions that allowed it to scale back emergency aid for financial institutions.

It took pains to distinguish its efforts to foster market liquidity from monetary policy and to draw the distinction between the discount rate and its main federal funds rate, which remains near zero to help a fragile U.S. economic recovery. Fed officials also insisted the move that takes effect on Friday was not a sign that a policy tightening was forthcoming.

"They do not signal any change in the outlook for monetary policy and are not expected to lead to tighter financial conditions for households and businesses," Fed Governor Elizabeth Duke said in an address, echoing the Fed statement.