Fed Raises Discount Rate; Fed Funds Rate Unchanged

And awaaaaaay we go...

The Federal Reserve on Thursday raised its discount rate to 0.75% from 0.5%, an effort to return its lending facilities to more normalized levels.

The Fed said the move, along with other recent modifications to its credit programs, does not signal a change in its outlook for the economy or for monetary policy, and the more important fed funds rate remains in its range of 0% to 0.25%.

The Fed usually changes the discount rate at the same time it does the fed funds rate, but after the unprecedented steps taken to combat the financial crisis, the Fed is eager to start bringing rates back to more traditional levels, and Thursday’s move is a start.

The discount rate is the interest rate the Fed charges banks that borrow from the central bank itself for short periods. Last week, Federal chairman Ben Bernanke said the Fed was mulling a “modest increase” in the discount rate “before long,” saying the bump up “should be viewed as further normalization…in light of the improving conditions in financial markets.”