WASHINGTON — The Federal Reserve on Thursday took its most notable step so far toward unwinding some of the extraordinary measures it took to prop up the economy during the financial crisis.
The central bank raised the discount rate — the interest rate that banks pay to borrow money during emergencies.
The hike to 0.75 percent from 0.5 percent was widely expected and does not foreshadow an immediate rise in consumer loan rates.
The central bank went out of its way to stress that it expects consumer rates to remain “exceptionally low” for “an extended period.”
Although it has ended some emergency lending already, the Fed is stepping gingerly for fear of spooking investors and thwarting the fledgling rebound in the housing market and the overall economy.
Nevertheless, the increase in the discount rate is highly symbolic and a clear indication that the federal government is eager to withdraw some of the stimulus efforts it rolled out during the recession.
The discount rate is the rate banks pay when borrowing directly from the Federal Reserve. The central bank began lowering the discount rate in August 2007 as the credit crunch took hold with the collapsing sub prime- mortgage market.
The Fed, which had signaled such a move for weeks, portrayed its action as moving its emergency program for banks closer to normal. The announcement came after the markets were closed Thursday.
But investors saw it initially as a prelude to higher borrowing costs across the board.
“I think one man’s normalization is another man’s tightening,” said T.J. Marta, market strategist and founder of Marta on the Markets, a financial- research firm, explaining the markets’ reaction.
Investors viewed the boost in the emergency lending rate as a step toward broader credit tightening. In after-hours trading, the dollar strengthened, yields on two-year Treasury securities rose and stock futures dipped.
If the recovery continues to gain steam, the Fed is expected later this year to begin raising the broader federal funds rate, which directly affects the rates that consumers pay for mortgages and other types of borrowing.
“We are not going to have any big ramp-up in rates anytime soon,” said Adolfo Laurenti, an economist at Mesirow Financial in Chicago. “But the message probably is, ‘. . . If you want to buy a house, you better hurry up.’ “
In technical terms, a change in the discount rate has no direct effect on interest rates consumers pay on mortgages, credit cards and other types of debt. Yet many economists say it foreshadows a hike in consumer rates later this year.
