The Federal Reserve hiked the discount rate 25 basis points to 75 basis points late Thursday, sending the U.S. Dollar sharply higher. This buying spree spilled over into the overnight trade pushing the Dollar Index closer to the all-important major 50% level at 82.63.
The discount rate hike by the Fed was implemented to encourage banks to borrow more from the private sector. This move does not reflect a change in monetary policy despite market reactions and analyst commentaries to the contrary. Some have interpreted the action by the Fed as a move towards monetary-policy normalization although the Fed insists this is not the case. As far as the Fed is concerned, its official statement is that interest rates will remain low for an "extended period".
What it could mean is that the Fed is comfortable enough to begin hiking rates although it is not a change in monetary policy. In addition, I think it sends a clear signal that the emergency supply of liquidity that helped fund the economic recovery is done. It could also be interpreted as a psychological move by the Fed for investors to get ready for the future course of monetary policy. This action by the Fed is basically signaling that future rates are more likely to go up, rather than stabilize or go down.......more detail
No comments:
Post a Comment