Keeping rates of interest near zero is what the Federal Reserve has been doing during the recession. This is because it thinks that will best protect from inflation or deflation. 12 regional Federal Reserve Bank directors met in order to talk about urgent loans and their discounted cost. The very same rate being charged to banks for financial loans is being charged with these discounted rates. The Federal Reserve is charging a very low cost. Recovery is so slow that two Federal Reserve branches suggested rates needed to be raised.
Federal Reserve is keeping rates low
The Federal Reserve has a policy right now that will be kept. That means all fees, including financial institution financial loans, will stay very low. Essentially, the bet is that if banks have to borrow money, the access to liquid capital is there and breathing room for a strained banking and finance industry is assured. The recovery is fairly slow right now. Even so, it appears like it is getting close and soon every little thing will be back to normal.
Whether or not to let two Fed banks get higher rates
According to Bloomberg, directors of two of the 12 regional Federal Reserve banks hope a rise in fees can apply. Of course the increase would be less than 1 percentage point and would only apply to emergency loans. They think it is time to raise the fees. Rates may have to be raised ultimately and better at the beginning of the recovery than at the end. Currently, a fast cash loan from the Fed comes with a rate of interest of .75 percent. There is one more thing to think about. Fewer banks are borrowing right now.
This isn’t occurring anytime soon
Only Kansas City and Dallas Federal Reserve banks asked for the higher rates. Also, the higher rates were very small. It also was not adopted. Bank rates will probably hold low for some time.
Additional reading
Bloomberg
bloomberg.com/news/2010-09-07/fed-directors-last-month-saw-only-modest-near-term-expansion.html
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