Fed changes bank loan rate

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Fed changes bank loan rate

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The Federal Reserve has sent a message to the market by raised the interest rate it charges banks for short-term loans.

It was the first step by the US central bank towards normalising lending, signalling that the era of cheap borrowing is drawing to a close.

However bank policymakers, led by Fed chairman Ben Bernanke, stressed that borrowing costs for consumers or companies would not rise.

Its main interest rate will remains unchanged, near zero percent, to help sustain a fragile US economic recovery.

What has been raised – for the first time since June 2006 – is the discount rate.

It has gone up from 0.5 percent to 0.75 percent.

That was a response to improved financial market conditions which means the banks do not need so much help.

The Fed was at pains to point out that the move did “not signal any change in the outlook for the economy or for monetary policy.”

It cautioned that recovery from the recession will probably be sluggish and its main interest rate will likely stay near zero for “an extended period.”