The US central bank is considering raising the discount interest rate at which it lends directly to commercial banks, Federal Reserve Chairman Ben Bernanke said today, marking the first possible shift in monetary policy in more than a year, according to dpa. Raising the discount rate would signal a renewed confidence in the financial sector. But Bernanke said the Fed is not yet prepared to raise the closely watched benchmark federal funds rate, the inter- bank lending rate which more directly impacts the wider economy. In prepared remarks to a committee of the House of Representatives, Bernanke said the stabilizing financial sector was leading the Fed to start pulling back from a series of unprecedented interventions it took as Wall Street faced collapse in autumn 2008. "Before long, we expect to consider a modest increase in the spread between the discount rate and the target federal funds rate," Bernanke said in remarks released by the central bank. The hearing itself was cancelled Wednesday because of a snowstorm in Washington. Both the federal funds rate, which is at a record low of nearly 0 per cent, and the discount rate, which sits at 0.5 per cent, have been unchanged since December 2008. Bernanke repeated that the benchmark rate would remain near 0 per cent "for an extended period" until there are clearer signs of a broad economic recovery. Until that time, Bernanke said the discount rate it charges on bank deposits would likely replace the federal funds rate as a policy guide for the Fed. The changes "are not expected to lead to tighter financial conditions for households and businesses and should not be interpreted as signaling any change in the outlook for monetary policy," he said.
