Fed raises discount rate, BoJ holds

The Fed's exit from ultra-loose monetary policy took another step forward on Thursday. Bloomberg reports:

The Federal Reserve Board raised the discount rate charged to banks for direct loans to 0.75 percent from 0.50 percent and said the move will encourage financial institutions to rely more on money markets rather than the central bank for short-term liquidity needs.

“These changes are intended as a further normalization of the Federal Reserve’s lending facilities,” the Federal Reserve Board said today in a statement. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy.”

The discount rate action is effective on Feb. 19. The Board also said that effective March 18 “the typical maximum maturity for primary credit loans will be shortened to overnight.”

While the timing was unexpected, economic reports earlier in the day were already suggesting that tighter monetary policy was not inappropriate. From Bloomberg:

Manufacturing will remain at the forefront of a U.S. economic recovery that’s likely to extend at least through the middle of the year as companies invest in new equipment, reports today indicated.

The New York-based Conference Board’s measure of the outlook for the next three to six months increased 0.3 percent in January. The Federal Reserve Bank of Philadelphia’s general economic index rose to 17.6 in February from 15.2 as a measure of orders surged to the highest level in more than five years. Readings greater than zero signal growth...

The number of Americans filing first-time claims for unemployment insurance unexpectedly rose last week, indicating improvement in the labor market will be uneven. Initial jobless claims rose by 31,000 to 473,000 in the week ended Feb. 13, the Labor Department in Washington said today...

Prices paid to factories, farmers and other producers accelerated more than anticipated in January, Labor Department figures showed. The 1.4 percent rise in the producer price index followed a 0.4 percent increase in December and reflected in part higher energy costs.

In contrast, a scheduled policy meeting by the Bank of Japan on Thursday saw interest rates being left unchanged. AFP/CNA reports:

Japan's central bank announced Thursday that it was leaving its benchmark interest rate unchanged at 0.1 percent as it fights stubborn deflation in the world's second-largest economy.

This is even as economic indicators show continuing economic recovery in Japan, the coincident index for December rising to 97.4 from 96 in November and the leading index to 94.3 from 91.