WASHINGTON (Feb. 19, 2010) — Citing recent improvements in the U.S. economy, the Federal Reserve Board raised two key interest rates, though it left alone the most important—the federal funds rate—at 0 to 1/4 percent.
The Fed voted unanimously to raise the primary credit rate—also known as the discount rate—from 1/2 to 3/4 percent effective today. The discount rate is the rate the 12 Federal Reserve banks charge in direct loans to private banks. The last movement on the discount rate, according to the Fed, was in August 2007, when it lowered that rate from 1 to 1/2 percent.
The Fed also raised the minimum bid rate for the Term Auction Facility from 1/4 to 1/2 percent. However, it chose to keep the federal funds rate—the rate private banks charge to other banks—the same, because the economy hasn't improved enough to raise that rate, according to a Federal Reserve press release.
Raising the discount rate will encourage banks to rely on private funding for short-term credit and use the Federal Reserve only as a backup, the Fed said.