fed proposal

[<mosler@xxxxxxxx>]

IMHO this would make the Fed's job of
hitting it's fed funds target much more
difficult and require more frequent intervention:


Reuters Market News
Fed proposes raising US discount rate over fed funds

WASHINGTON, May 17 (Reuters) - The Federal Reserve on Friday proposed changes in its discount window lending program that, if adopted, would put the discount lending rate for loans from the Fed to banks above the federal funds rate target.

The Fed said this would not mean a change to the central bank's stance of monetary policy or to the fed funds target rate which is at 1.75 percent. The discount rate is currently 1.25 percent. There will be a 90-day comment period on the proposal after the Federal Register publication which is expected soon.

"The Board is proposing the establishment of a new type of discount window credit, to be called primary credit," the Fed said in a statement. "Under the proposal, the interest rate on primary credit would initially be set at 100 basis points above the target federal funds rate."

The Fed also proposed a secondary credit rate that would be 150 basis points above the the fed funds rate for institutions that do not qualify for primary credit.

The Fed has mulled such changes, which could reduce volatility in the federal funds rate that is now its key monetary policy tool, for years.