The cut in the interest rate on the Fed’s currency swaps with Europe has led to speculation that the Fed will have to cut its discount rate as well. I’m pretty sure that speculation is wrong.
The point is fairly simple: European banks will now be able to get one week dollar loans from the ECB at an interest rate of about 0.6 per cent. If a US bank needed to borrow dollars from the Fed and went to the discount window it would have to pay 0.75 per cent. That seems perverse. Read more