The Federal Reserve took another shot at slowing the economy on Tuesday afternoon by hiking the Federal Funds rate by a quarter percent to its highest level since 1995, while simultaneously increasing the Discount Rate to its highest level since 1991. The only reaction from the bond market was a mild decrease (yes, a decline) in ten and thirty year Treasury rates while one, two and five year Treasuries remained nearly unchanged. Mortgages didn't budge at all.

Meanwhile, the Dow turned a 77 point drop at the open into a 150 point gain late in the day, undeterred by the Fed's efforts to cool the exuberance. Word that the Supreme Court had ruled 5-4 that the US Food and Drug Administration cannot regulate tobacco as a drug (because Congress never granted it such authority) gave the Dow a big lift as tobacco stocks rallied. However, the Nasdaq was stalled near unchanged with an hour of trading remaining.

We learned on Tuesday morning that the January trade deficit widened to a record $28 billion due to higher oil imports, based on the sharply higher cost of such inbound cargo. Meanwhile, exports fell into negative territory for the first time since last May.