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Fed Begins Tightening Process: Discount Rate Raised To 0.75% From 0.5%, Futures Plunge, Dollar Surges, Curve Pancakes
Will the Steepener/Carry Trade/Long Stock bandwagon please proceed calmly in single file through the exit of the burning theater. Fed hikes discount rate by 25 bps - Hoenig, Plosser are finally heard. Futures plunge, dollar surges, 2s10s pancake.
For release at 4:30 p.m. EDT
The Federal Reserve Board on Thursday announced that in light of
continued improvement in financial market conditions it had unanimously
approved several modifications to the terms of its discount window
lending programs.
Like the closure of a number of extraordinary credit
programs earlier this month, these changes are intended as a further
normalization of the Federal Reserve's lending facilities. The
modifications are not expected to lead to tighter financial conditions
for households and businesses and do not signal any change in the
outlook for the economy or for monetary policy, which remains about as
it was at the January meeting of the Federal Open Market Committee
(FOMC). At that meeting, the Committee left its target range for the
federal funds rate at 0 to 1/4 percent and said it anticipates that
economic conditions are likely to warrant exceptionally low levels of
the federal funds rate for an extended period.
The changes to the discount window facilities
include Board approval of requests by the boards of directors of the 12
Federal Reserve Banks to increase the primary credit rate (generally
referred to as the discount rate) from 1/2 percent to 3/4 percent. This
action is effective on February 19.
In addition, the Board announced that, effective on
March 18, the typical maximum maturity for primary credit loans will be
shortened to overnight. Primary credit is provided by Reserve Banks on
a fully secured basis to depository institutions that are in generally
sound condition as a backup source of funds. Finally, the Board
announced that it had raised the minimum bid rate for the Term Auction
Facility (TAF) by 1/4 percentage point to 1/2 percent. The final TAF
auction will be on March 8, 2010.
Easing the terms of primary credit was one of the
Federal Reserve's first responses to the financial crisis. On August
17, 2007, the Federal Reserve reduced the spread of the primary credit
rate over the FOMC's target for the federal funds rate to 1/2
percentage point, from 1 percentage point, and lengthened the typical
maximum maturity from overnight to 30 days. On December 12, 2007, the
Federal Reserve created the TAF to further improve the access of
depository institutions to term funding. On March 16, 2008, the Federal
Reserve lowered the spread of the primary credit rate over the target
federal funds rate to 1/4 percentage point and extended the maximum
maturity of primary credit loans to 90 days.
Subsequently, in response to improving conditions
in wholesale funding markets, on June 25, 2009, the Federal Reserve
initiated a gradual reduction in TAF auction sizes. As announced on
November 17, 2009, and implemented on January 14, 2010, the Federal
Reserve began the process of normalizing the terms on primary credit by
reducing the typical maximum maturity to 28 days.
The increase in the discount rate announced
Thursday widens the spread between the primary credit rate and the top
of the FOMC's 0 to 1/4 percent target range for the federal funds rate
to 1/2 percentage point. The increase in the spread and reduction in
maximum maturity will encourage depository institutions to rely on
private funding markets for short-term credit and
to use the Federal Reserve's primary credit facility only as a backup
source of funds. The Federal Reserve will assess over time whether
further increases in the spread are appropriate in view of experience
with the 1/2 percentage point spread.
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Well, the Fed is certainly influencing a few perceptions on this board today. Good luck with those.
I love this country.... !
Bernankee and Guitnerrr zig - zag the markets....
traders get killed betting on what they say...
more news >>>. foxnews.com Obama wants to pass the health-care bill with-out the senate vote.... he won't make any friends doing that.. the senators will blow their top...
instant karma ; .... you are right cnn is going on and on about the Iran / atomic bomb threat... last week Hillary Clinton was slaming Iran's government... Israel is ready to make a move.. Oil will go up big time.. the insiders here will make huge bets on oil futures..
Iran people are prowd.. they won't take it , they will hit back..
>"Will the Steepener/Carry Trade/Long Stock bandwagon please proceed calmly in single file through the exit of the burning theater<
Sez it all...though i note 90% of the posters here
don't quite get it. Apparently the mysterious direct
bidders saw it coming. Maybe the record yield spread
day after day after day?
The Fed is testing the market reaction with this little toe in the water. They can't keep rates at almost zero forever. Couple that with the end of MBS purchases in March and you'll come to one conclusion. They either need to take all this stuff off the table or ante up for the next round of quantitative easing.
WANT TO KNOW MORE?
http://www.youtube.com/watch?v=eD8F0sXEzuQ
I don't know, carry trade doesn't look too bad this morning. Futures aren't down heavily. In fact, they're within the normal "Time to pump up" range.
Y'all are touting this like it's the beginning of the end, yet nothing seems to reflect it on price.
Gold has clawed its way back from being down -$15 overnight. So much for $950 gold.
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