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Fed Hikes Discount Rate

The Federal Reserve increases the rate charged to commercial banks from 0.5% to 0.75%. S&P and gold futures fall, while the dollar rises.



) -- The

Federal Reserve

on Thursday raised the

interest rate charged to commercial banks through its discount window


In a late-afternoon announcement, the Fed said it was raising its discount rate from 0.5% to 0.75%, effective Friday. The move widens the spread between the fed funds rate and the discount rate to 0.5% in order to "encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds," the Fed said in a statement.

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Shortly after 6 p.m. EST, futures for the

S&P 500

fell 9.70 points at 1095.9 and were 9.05 points below fair value. The dollar index was up 0.69% at 80.93, while the April gold contract was recently losing $12.10 an ounce to $1,106.60.

The Fed called the move a "further normalization" of monetary policy as opposed to a change in policy or outlook, cited "continued improvement in financial market conditions" as the primary driver and said the changes were not "expected to lead to tighter financial conditions for households and businesses."

Though the central bank has signaled this move for some time, the timing did come as a surprise to some Fed watchers.

Art Hogan, chief market strategist at Jefferies, said the move "should be perceived as a positive" because the spread is beginning to return to a more typical 100 basis points.

But Doug Roberts, chief investment strategist at, said the hike may be coming ahead of an unexpectedly hotter consumer price index figure on Friday morning.

"They're not taking it well," said Roberts, in reference to stock futures. "It's a weird time to do this with options expirations tomorrow. I'm kind of a little shocked on a day like this with already a lot of crosscurrents. I hope they don't make a mistake with this."

--Written by Sung Moss in New York