On Thursday afternoon, 16 August 2007, the FED made a rate change of its discount rate. The Discount window, not to be confused with the Fed Funds rate, is where banks go direct to the Federal Reserve to borrow overnight money. The Fed Funds is overnight lending between banks.

The FED lowered its discount rate from 6.25% to 5.75% in order to add liquidity to the financial markets. More important it was a signal to give the markets confidence. Apparently, it worked. The DJIA recovered and closed mostly flat.

That recovery persisted Friday. The DJIA closed +233.30 or +1.82% to 13079.08. The S&P 500 closed at 1445.94 which was +34.67 or 2.46%

Problem for rates is bonds followed suit. The rate on the 10-year Treasury closed at 4.673% which was .073% over Thursday’s close. As money went to the stock market, it came, at least in part, from bonds.

Traders ignored the only economic item; the preliminary Michigan Consumer Sentiment Survey. Analysts predicted that the index would be 87.0 to 88.5. Consumers surveyed were less optimistic at 83.3.