Analysts Say Fed Plans to Hike Key Interest Rate Soon

There had been predictions that key interest rates could rise soon after the New Year passed and now analysts say that time may be upon us. However, the analysts are predicting that one key rate among other interest rates could increase. This rate is known as the “discount rate.”

What is the Discount Rate?

The discount rate is the interest rate that the Federal Reserve charges banks that borrow from the central bank for short periods at what is known as the “discount window,” which is a Fed lending operation. Banks only do this in a time of need like when they are faced with a short-term cash crunch and aren’t able to borrow money from another bank or financial institution at a reasonable rate.

Originally, this rate was sitting at about 3 percent, but after the financial crisis hit and banks flocked to the Fed for funds to the tune of $400 billion, the rate was cut to 0.5 percent. Now, because the market seems to be able to withstand an increase, the Fed plans to raise it again.

Could This Rate Increase Affect Me?

The good news is that this rate is not among the rates that Bernanke mentioned in January that could rise, which include CDs, savings, money markets, auto loans, home equity lines, credit lines or credit cards.

These interest rates are tied to different Federal Reserve funds and are predicted to stay low for some time to help consumers slowly begin participating in the economy again and hopefully help it improve.