The Fed Raises Its Discount Rate in a First Tightening Move

Stock-index futures fell sharply late Thursday after the Federal Reserve announced it's raising the discount rate it charges on loans to banks. The dollar rallied sharply, and the euro touched a nine-month low on the move, which market participants interpret as signaling the beginning of the end of the central bank's extraordinary stimulus measures.The Fed raised the discount rate to 0.75% from 0.5% in order to encourage banks to tap money markets rather than the central bank for short-term loans.

Futures on the blue-chip Dow Jones Industrial Average ($INDU) were off 65 points, or 0.6%, at 10,310 as of 4:40 Eastern time, while S&P 500 ($INX) index futures were off 9 points, or 0.8%, at 1,096. Action in the futures market is often -- but not always -- indicative of market direction during the regular session.

The U.S. Dollar Index, which measures the greenback against a trade-weighted basket of six major currencies, leaped as much as 0.7% on the news, a large move in currency terms.

In a statement aimed at market speculation that the Fed is finally changing the ultra-accommodative monetary policy it has maintained since the financial crisis struck, the Fed said: "These changes are intended as a further normalization of the Federal Reserve's lending facilities. The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy."

Still, it's the first upward rate move from the Fed since the meltdown. It's not likely to be the last.

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