The Rate Hike Cycle Begins

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Just yesterday in the FOMC meeting minutes from January, it was becoming painfully clear that the FOMC was getting closer to hiking rates.  Most notable was that the discussions had revolved around whether changing the “extended period” and more importantly that the FOMC was considering raising the discount rate.

It is unusual to see the FOMC hike or cut the discount rate and not move the Fed Funds rate…. but that is what we are getting.  The Fed has raised the discount rate by 0.25%.

The FOMC raised the discount rate to 0.75% from 0.50%, effective tomorrow.  The FOMC noted that the policy outlook is effectively the same as during the January meeting.  But it also noted that it will assess whether further discount rate hikes are needed.

The discount window borrowings as of last night were $87.77 billion and foreign central bank custody holdings were listed as $2.957 trillion.  More important than that is that the Fed’s Mortgage-backed securities holdings crossed the $1 trillion mark.

The discount rate is the interest rate that depository institutions are charged to borrow short-term funds directly from the Federal Reserve.   Today is not a full rate hike.  But this is the beginning of the end of all that free money.