After the stock market closed Thursday, the Federal Reserve raised its discount rate by a quarter-point to 0.75 percent. The discount rate is the rate the Federal Reserve charges banks for emergency loans. It is less important than the key federal funds rate which is the rate that loans for consumers and businesses are based on.
That rate remains at 0.25 percent and is expected to stay low for an extended period of time. The Federal Reserve itself said its action should not be seen as a sign that it will raise the federal funds rate any time soon. The Fed does not want to cut off the incipient recovery in the US economy before it really gets off the ground.
This is especially true with the US unemployment rate still hovering around 10 percent with no sharp pick-up in hiring expected any time soon. In addition, a record number of people remain behind on their mortgage payments or are in foreclosure. A premature rise in interest rates would all but rule out a recovery in the housing market.
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