Nothing More than a Fed Discount Rate Increase

On Thursday, the Federal Reserve Board released an announcement stating its decision to raise the discount rate from 0.5 % to 0.75%. This tightens the interest on emergency loans to banks. The decision is the Fed's latest response to improving financial market conditions. But, this should not be mistaken for the start of a broader interest rate hike. As PIMCO further warns - so long as unemployment remains near 10%, jobless numbers increase, and the economy recovers at a snails pace, we should not expect more economic pullback. It wouldn't make sense for the US to withdraw monetary incentives when a full recovery is not in effect. Others like Australia have all the reason to raise rates during a more productive economic recovery.

However, as the Fed takes further steps to reduce their asset holdings, the US Dollar will benefit from this extra support.

*chart above displays the Fed's asset holdings - notice the sudden spike during the 2008 financial crisis. Provided by Bloomberg*