The only thing more surprising than the Fed raising the Discount Rate was the market’s reaction to the news. The increase in the rate was seen as the Fed taking its foot off of full throttle, but not totally giving up an accommodative stance. Still, it was a move toward the “exit strategy” discussed in the FOMC minutes, just sooner than most expected. Perhaps tightening the rate that banks can borrow will encourage them to lend rather than simply buy Treasuries for a nominal yield advantage. It does throw a new question into the mix; will the higher rates slow the economic recovery? Remember, the Fed said that they would stay accommodative until the economy had fully recovered and we saw improvement in jobs. We’ll get the February jobs report at the end of next week, but expectations are for an uptick to 9.9% from 9.7%. The Fed was more likely reacting to the strong Factory Orders and solid Manufacturing data. Inventories are still low and production is up. This should help support GDP numbers through this first quarter The Fed did not want to be seen as falling behind the curve. Fed Chairman Bernanke will be testifying this week and the Fed having made this move will give him credibility with those who accused the Fed of being too accommodative. The Fed can stand pat on rates for several months and wait out the economic results. As for the market, this has turned into a healthy bounce. We’ll likely be able to hold the recent lows on any test before the attention turns to first quarter earnings in mid-March.