The Federal Reserve announced a bump in the interest rate for short-term loans to banks yesterday, citing "continued improvement in financial market conditions" as the rationale for the move.  From the Fed release:

The increase in the discount rate announced Thursday widens the spread between the primary credit rate and the top of the FOMC's 0 to 1/4 percent target range for the federal funds rate to 1/2 percentage point. The increase in the spread and reduction in maximum maturity will encourage depository institutions to rely on private funding markets for short-term credit and to use the Federal Reserve's primary credit facility only as a backup source of funds. The Federal Reserve will assess over time whether further increases in the spread are appropriate in view of experience with the 1/2 percentage point spread.

Global stocks, most notably in Asia, dropped on the news.  The dollar, on the other hand, rose.  It is now valued at $1.35 against the Euro--the highest it has been in nine months. The move signals that the "era of extraordinarily cheap money," as Andrew Ross Sorkin notes on his DealBook blog, is coming to a close.  But beyond that, we are cautioned not to expect major interest rate changes any time soon:

Given the slow and uneven nature of the recovery, an unemployment rate close to 10 percent and fears of a new wave of mortgage defaults, particularly in commercial real estate, few economists expect the Fed to begin a campaign of broader interest rate increases quickly or sharply. The central bank reaffirmed last month that the key short-term interest rate it controls would remain “exceptionally low” for an “extended period,” language it has used since March.

While borrowing by banks from the Fed’s discount window has already fallen to more historically normal levels from its peak in October 2008, many small and medium-size businesses still find it difficult to obtain loans, a major concern of the Obama administration and Congress.

Randall S. Kroszner, an economist at the Booth School of Business at the University of Chicago and a former Fed governor, said after the announcement: “This is a technical change that makes sense as a precondition for other changes, but is not a precursor of short-term change.”

Read Fed Rate Move Rattles Stocks here.