On Thursday February 18, 2010, 5:08 pm
WASHINGTON (AP) -- The Federal Reserve decided Thursday to boost the rate banks
pay for emergency loans. The action is part of a broader move to pull back the
extraordinary aid it provided to fight the worst financial and economic crisis
since the 1930s. Enter now rising interest rates and rising inflation. The time is now to carrefully place your
savings into inflation proof investments.
Commodities, metals, dry food goods, sellable merchandise, and housing
and farm land investments. Cautiously, as the value of this currency and many
others are about to become majorly devalued.
In a recent article it was stated that inflation is expected to be 16.5
% for this year and continue at high rates for the next few years (2012)
The move won't directly affect borrowing costs for millions of Americans. But with the worst of the financial crisis over, it brings the Fed's main crisis lending program closer to normal.
The Fed decided to bump up the so-called "discount" lending rate by one-quarter point to 0.75 percent. The increase takes effect Friday.
The central bank said the action should not be viewed as a signal that it will soon boost interest rates for consumers and businesses. Record-low borrowing costs near zero are still needed to foster the recovery, it said. The Fed repeated its pledge to keep interest rates at "exceptionally low" levels for an "extended period."
The economy is growing again, and financial conditions have improved. But unemployment is still near double digits, and demand for loans remains weak. Many ordinary Americans and small businesses have found it difficult to borrow.
When credit virtually shut down starting in 2008, banks had nowhere to go except the Fed to borrow. Banks can now more easily tap private lending sources than they could then. As a result, the Fed now feels more comfortable about boosting the rate banks pay on emergency loans.
Because financial conditions have improved, the Fed also said Thursday it will shorten the length of emergency loans drawn from its emergency lending program. They will go back to overnight loans, effective on March 18.
Earlier this month, the Fed shut down a handful of programs to help banks and other companies get access to credit.
Like those program shut downs, the action announced Thursday is "intended as a further normalization of the Federal Reserve's lending facilities," the Fed explained.
"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 monetary policy," the Fed said.