Discount Rate vs. Fed Funds Rate: What’s been changed and what stayed the same.
The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window. The Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All discount window loans are fully secured. [Source: Federal Reserve]
Here is a graph that shows the 5 year history of discount window borrowing:
The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. [Source: Federal Reserve]
So what did the Federal Reserve change? The press release outlined:
"At that meeting, the Committee left its target range for the federal funds rate [unchanged] at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
and
"The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent."
The net effect of this is diminished, since borrowing at the Discount Window has been significantly reduced from the $400 billion dollar high to an elevated $100 billion.
Share on FacebookInteresting Documentary on Quants
This is definitely worth watching -- http://vodpod.com/watch/3021879-tegenlicht-2010-quants-de-alchemisten-van-wall-street.
The film is a series of opinions from several principles of Quant Community. Two of those featured are Paul Wilmott and Emanual Derman. Together they've come up with The Financial Modelers' Manifesto. Despite the homage to the Communist Manifesto, it provides some useful and comedic insight and advice, specifically the end:
The Modelers' Hippocratic Oath
~ I will remember that I didn't make the world, and it doesn't satisfy my equations.
~ Though I will use models boldly to estimate value, I will not be overly impressed by mathematics.
~ I will never sacrifice reality for elegance without explaining why I have done so.
~ Nor will I give the people who use my model false comfort about its accuracy. Instead, I will make explicit its assumptions and oversights.
~ I understand that my work may have enormous effects on society and the economy, many of them beyond my comprehension.
Share on FacebookFrom cnbc.com, “The inventories index rose sharply, to 0.0, its highest reading in more than a year.”
Source: CNBC.COM
Sometimes reality makes up it's own jokes.