The Fed went out of its way to signal its intention to raise the discount rate to the market well before doing so. This time around, there has not been a peep. I suspect they will be quite clear about their intentions before bumping the rate back up to its normal 100 bp spread over the Fed funds rate.
Even if they do hike the rate, so what? The Fed is making the discount rate a penalty rate for banks that cannot get funding in the market, once again, after opening the window to one and all during the financial crisis.
Last time around the market went crazy on the unexpected timing of a hike, only to see the Fed play down its impact. The dollar spiked for less than a day before returning to its 1.3625 starting point.
We won’t get fooled again…
