The Federal Reserve, in an action that will challenge the recovery, has increased the interest rate. The move, which takes the interest rate from 0.50 percent to 0.75 percent, marks the initial leap in the return to normalized lending.
Emergency loans, along with finance sector as a whole, have been bloated by government supports for upwards of two years. How the change announced today affects the market will be among the first indicators of the legitimacy of the recovery. The Fed says the move is meant to discourage emergency borrowing by banks.
They made a point to express that increased rate, which will be in effect on Friday, did not signify a wider tightening of credit.
According to a statement from the Federal Reserve, “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.”
For the time being the current benchmark interest rate, the federal funds rate, will remain unchanged.
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