It’s time for banks to wean themselves off cheap Fed credit. This is what the Fed is instigating by boosting the discount rate this afternoon. It’s the rate the U.S. Federal Reserve charges banks for emergency loans, and as of tomorrow it will be a quarter percentage point higher. Others can weigh in on the technicalities. Today’s action feels more like a psychological boost than anything especially substantive — monetary policy remains essentially the same, according to a Fed statement. In my broad-brush view, the Fed’s move counts as a milestone in the financial-crisis era. Maybe, just maybe, the fiasco is really and truly ending and we can go back to normal.
What is “normal” in the aftermath of a crisis that killed banks, insurers, life savings and livelihoods? For banks, the new normal is, after today, a bit more self-sufficiency. ”These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the Fed said. This action was expected but currencies are moving on the news – the dollar’s up – and this is probably because well-primed investors nonetheless couldn’t quite believe that the monetary mechanisms put in place during the crisis would ever be unwound. Have a look at colleagues’ Luca Di Leo and Jon Hilsenrath’s coverage.