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Did Fed Fire Starting Gun In Race To Raise Rates?

Thursday, 18 Feb 2010 | 5:23 PM ET

Chatter about rate hikes is growing louder now, after the Fed shocked the Street by hiking the rate it charges for emergency loans.

Specifically, the Federal Reserve said the discount rate would be increased to 0.75 percent from 0.50 percent, effective Friday.

"Like the closure of a number of extraordinary credit programs earlier this month, these changes are intended as a further normalization of the Federal Reserve's lending facilities," the Fed said in a statement.

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, said the Fed.

What must you know?

Strategy Session with the Fast Money traders

I don’t think this is a signal that the fed funds rate is going to increase anytime soon, says CNBC’s Steve Liesman. Think of it as a first lap in the 15 mile run.

But the market is probably looking down the road and wondering if the Fed is going to tighten in a more meaningful way, adds Karen Finerman. And the market could take this move to mean, yes they are.

I see the Fed’s move as a signal that the race to raise rates has now started, adds Guy Adami. They’ve fired the gun. This specific move should not affect banks but it's the beginning of the race. It's started.

I may sell some of my JPMorgan holdings on the news, adds Joe Terranova. And I'll be closely watching the action on Friday. If the market holds that will be very telling. Also I'll be keeping an eye on Treasurys, he adds. I think they could move a lot lower on the news.

The timing is most surprising, says Schaeffer’s analyst Richard Sparks in a Reuters interview, The last day of options expirations is tomorrow (Friday) and this is going to create a lot of angst and ruin a pretty good week we were having.

Crude futures dropped like a stone after the Fed raised its discount rate, adds Addison Armstrong in a Reuters interview. The crude oil market is following the S&P 500 Index, which fell on the news.

I'm a buyer of oil on the dip, counters Joe Terranova. And I'd trade it with the USO. I think the action in oil is all about the geo-political concerns in the Mideast.

Word on the Street
The Fast Money traders take a look at today's top business stories.

In the after hours both ANH and NLY took big hits on the news, reveals Brian Kelly. That could be interpreted as a belief the Fed is stepping away from the mortgage market.

I think the Dollar Index could move higher on the news, adds CNBC's Rick Santelli. I don't know if it stays higher but it's worth watching.


Looking at the broad market, the Fed move could be interpreted as either bullish or bearish. The market could take it to mean down the road banks may become slightly less profitable, adds Finerman. That’s bearish. However, the market could it as a signal that the economy is improving. That, of course, is bullish.

It doesn't change the way I view banks stocks one bit, says Macquarie analyst David Trone. My analysis shows that even real tightening doesn’t impact banks stocks while credit is an issue, he explains. It's credit quality that drives banks stocks.

And it doesn't change my view on the way to trade currencies, says David Riedel, president of Riedel Research. I’m short the dollar and short the euro and long the currencies of the commodities exporting countries such as Brazil, Russia, Australia and China.




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Trader disclosure: On February 18th, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Kaminsky Owns (EPV); Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Grasso Owns (ABK), (AAPL), (ASTM), (BAC), (BGP), (C), (COST), (CSCO), (FAZ), (PFE), (PRST), (WMT), (V); Finerman's Firm Owns (IBB); Finerman's Firm Owns (XBI); Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firn And Finerman Own (JPM)
Finerman's Firm Is Short (IJR), (SPY), (IWM), (MDY), (USO)<; Finerman Owns (AAPL); Finerman's Firm Owns (BAC) Leaps, (BAC); Finerman Owns (BAC) Preferred, (BAC); Finerman's Firm And Finerman Own (GGWPQ), (GOOG), (JPM), (WFC); Terranova Owns (JPM), (RIMM), (IBM), (QCOM), (GOOG), (EMC), (AAPL), (DELL), MSFT); Terranova Is Long March 2010 Crude Oil Futures; Terranova Is Long April 2010 Crude Oil Futures; Terranova Is Long December 2010 Crude Oil Futures; Terranova Is Long December 2011 Crude Oil Futures; Terranova Is Long December 2012 Crude Oil Futures; Kelly Owns (HOV) Calls; Kelly Owns (ELX) Calls; Kelly Owns (FXE) Puts

For JoeTerranova
Terranova Works For (VRTS)
Terranova Is Chief Market Strategist Of Virtus Investment Partners, Ltd.
Virtus Investment Partners Owns More Than 1% Of (CLB)
Virtus Investment Partners Owns More Than 1% Of (DLR)
Virtus Investment Partners Owns More Than 1% Of (EXR)
Virtus Investment Partners Owns More Than 1% Of (IGE)
Virtus Investment Partners Owns More Than 1% Of (XLY)
Virtus Investment Partners Owns More Than 1% Of (DBV)
Virtus Investment Partners Owns More Than 1% Of (XLP)
Virtus Investment Partners Owns More Than 1% Of (XLB)
Virtus Investment Partners Owns More Than 1% Of (XLI)
Virtus Investment Partners Owns More Than 1% Of (SKT)

For Steve Grasso
Stuart Frankel & Co. Inc And Its Partners Own (AIZ)
Stuart Frankel & Co. Inc And Its Partners Own (ABX)
Stuart Frankel & Co. Inc And Its Partners Own (CUBA)
Stuart Frankel & Co. Inc And Its Partners Own (GERN)
Stuart Frankel & Co. Inc And Its Partners Own (GLG)
Stuart Frankel & Co. Inc And Its Partners Own (HSPO)
Stuart Frankel & Co. Inc And Its Partners Own (NWS.A)
Stuart Frankel & Co. Inc And Its Partners Own (NXST)
Stuart Frankel & Co. Inc And Its Partners Own (NYX)
Stuart Frankel & Co. Inc And Its Partners Own (PDE)
Stuart Frankel & Co. Inc And Its Partners Own (PRST)
Stuart Frankel & Co. Inc And Its Partners Own (RDC)
Stuart Frankel & Co. Inc And Its Partners Own (ROK)
Stuart Frankel & Co. Inc And Its Partners Own (TLM)
Stuart Frankel & Co. Inc And Its Partners Own (TOL)
Stuart Frankel & Co. Inc And Its Partners Own (XRX)
Stuart Frankel & Co. Inc And Its Partners Own (SDS)
Stuart Frankel & Co. Inc And Its Partners Are Short (QQQQ)
Stuart Frankel & Co. Inc And Its Partners Are Short (CL)

For Brian Kelly
Kanundrum Capital Owns (VMW)
Kanundrum Capital Owns (QLGC)
Kanundrum Capital Owns (BRCM)
Kanundrum Capital Owns (EWP)
Kanundrum Capital Owns (NBG)
Kanundrum Capital Owns (GDXJ)
Kanundrum Capital Owns (GLD)
Kanundrum Capital Is Long U.S. Dollars
Kanundrum Capital Is Short U.S. Treasury Futures
Kanundrum Capital Is Short (FCX)
Kanundrum Capital Is Short (EWY)

For David Trone
Macquarie Capital Has Entered Into An Investment Banking Relationship With (C) In Past 12 Months
Macquarie Capital Has Acted As Co-Manager In An Equity Offering By (C) In Past 12 Months
Macquarie Capital Or Affiliate Has Received Compensation For Investment Banking Services From (C) In Past 12 Months

For Mike Khouw
Cantor Fitzgerald & Co. Is A Market Maker In (AAPL)
Cantor Fitzgerald & Co. Is A Market Maker In (BAC)
Cantor Fitzgerald & Co. Is A Market Maker In (C)
Cantor Fitzgerald & Co. Is A Market Maker In (DELL)
Cantor Fitzgerald & Co. Is A Market Maker In (F)
Cantor Fitzgerald & Co. Is A Market Maker In (GENZ)
Cantor Fitzgerald & Co. Is A Market Maker In (GILD)
Cantor Fitzgerald & Co. Is A Market Maker In (GOOG)
Cantor Fitzgerald & Co. Is A Market Maker In (GS)
Cantor Fitzgerald & Co. Is A Market Maker In (IBM)
Cantor Fitzgerald & Co. Is A Market Maker In (JPM)
Cantor Fitzgerald & Co. Is A Market Maker In (LGF)
Cantor Fitzgerald & Co. Is A Market Maker In (MS)
Cantor Fitzgerald & Co. Is A Market Maker In (MSFT)
Cantor Fitzgerald & Co. Is A Market Maker In (QQQQ)
Cantor Fitzgerald & Co. Is A Market Maker In (SPY)
Cantor Fitzgerald & Co. Is A Market Maker In (WFC)
Cantor Fitzgerald & Co. Is A Market Maker In (XLF)
Cantor Fitzgerald & Co. Is A Market Maker In (YHOO)





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