By raising the discount rate, the Fed is telegraphing a change in policy even though it says it’s not. Naturally people interpret this as a sign that the dollar will strengthen - which it did following the announcement – but what’s really happening is that Team Bernanke is caving in to pressure from banks, insurance companies, and indeed virtually the entire fixed income market over artificially low rates that are destroying their portfolios. It’s also a sign that the Fed will likely end asset purchases shortly – perhaps as early as March.