By JEANNINE AVERSA
AP Economics Writer
WASHINGTON – The Federal Reserve decided Thursday to boost the rate banks pay for emergency loans. The action is part of a broader move to pull back the extraordinary aid it provided to fight the financial crisis.
The action won’t directly affect borrowing costs for millions of Americans. But with the worst of the crisis over, it brings the Fed’s main crisis lending program closer to normal.
The Fed chose to bump up the so-called “discount” lending rate by one-quarter point to 0.75 percent. It takes effect Friday.
The central bank said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses. It repeated its pledge to keep such rates at record-low levels for an “extended period” to foster the economic recovery.
The Fed had signaled for weeks that a higher discount rate was coming, though the timing of Thursday’s decision caught some by surprise. It portrayed its action as moving its emergency program for banks closer to normal.
The announcement came after the financial markets had closed. Investors saw it initially as a prelude to higher borrowing costs across the board. In after-hours trading, the dollar strengthened on the expectation of higher rates. Yields on two-year Treasury securities rose, and stock futures dipped.
After the sell-off in stock futures, Pimco Managing Director Bill Gross warned investors not to overreact.
“I’d accept the Fed at its word – that this isn’t a change in monetary policy or in the timing of it,” he said. “Calmer heads may