Fed raises discount rate from preposterous to ridiculous
Jay
February 19, 2010, 9:34 am

From .5% to .75%

During the worst of the recession, Alan Greenspan's legacy was torpedoed harder than the RMS Lusitania. Perhaps the biggest criticism was his decision to lower the Federal funds rate to 1% during the '03 recession while the discount rate sunk as low as .75%. These low rates on short term borrowing created a real estate boom where easy credit led to incredible inflation.

Now due to these extraordinarily low rates, the financial sector has been borrowing short and lending medium, which accounted for the fat profits the "investment banks" (technically, there are no more investment banks on Wall Street due to their conversions to bank holding companies) made the past two quarters.

Federal Reserve Chairman Bernanke and the rest of the Fed have made it clear that they intend to hike rates and contract the money supply when the economy is in recovery to avoid high inflation, but somehow I don't they'll be able to walk the fine line of keeping inflation in check and not hurting the recovery.