Lending

Fed Raises Bank Interest Rates

Reserve to be emergency source, not primary.

After two years of bailouts and debatable progress, the Federal Reserve is making its first move toward normalizing lending. On Friday, the Fed will put into effect an increase in the interest rate from 0.50 to 0.75 on emergency loans, acting to discourage emergency borrowing rather than tightening credit. Additionally, the Fed raised the minimum bid rate for its Term Auction Facility to 0.50 percent from 0.25 percent, and shortened the maximum maturity for lending from primary credit loans to overnight. The changes are meant to direct depository institutions to turn to private funding markets when interested in short-term credit, allowing the Fed to act as a backup or emergency source.