In a surprise move, the Fed announced their decision to raise the discount rate to 0.75%, up from 0.5%. The discount rate is the rate that the Fed charges banks for short-term loans. Even though the announcement came after the closing bell, the financial markets responded in emphatic fashion. The US dollar spiked and Treasury prices fell, while yields jumped. Stock futures point towards a much lower opening tomorrow.

Inflation may be coming a lot quicker than analysts expect. Despite the Fed’s insistence that the move was not an indication of a tightening of policy (which would ease inflation), it definitely signals the government’s fear of a possible further weakening of the dollar.  Many thought a discount rate increase would come following the March 18th FOMC meeting, at the earliest. With the CPI coming out tomorrow, the Fed might be preparing us for what many have feared, that inflation might finally come to realization.

The Fed also said the maximum maturity for discount window loans will be shortened to overnight instead of today’s lax policy of as much as 90 days. That change will take effect on March 18. - MarketWatch

The Fed ended by saying - “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.” Hmmmm…..