My piece from last Friday on the Fed's hike in the discount rate really requires a mea culpa.

But I really wasn't sure how to correct it, simply because so much else out there seemed equally off the mark, if in a different way.

Thankfully, James Hamilton, the Fed watcher and University of California economics professor who helps run Econbrowser, has cleared the fog that immediately descended over the 25 basis-point increase in the rate, from 0.50 percent to 0.75 percent.

Contrary to what most everyone said last week, it wouldn't have amounted to much of a tightening even if it were bigger than it was, because it really did nothing but affect the spread between the discount rate, at which banks borrow from the Fed, and the Fed funds rate, at which they borrow from each other. And equally important, the bank shortened the term of loans extended through the discount window from up to 28 days to 1.

As Hamilton explained in a post on Saturday, the Fed's simply trying to wean banks off the discount window, because it wants to wind down its current role as lender of last resort. And this is in line with that, says Hamilton, noting that the Fed has been phasing out a number of special lending facilities.

"The Fed clearly sees winding down the level of discount window lending as part of the same process. Raising the discount rate and returning to one-day loans are the ways it intends to finish doing that," the economist wrote.

However, as Hamilton sees it, this does nothing to help the Fed get out from under its pile of mortgage-backed assets, contrary to my own somewhat feverish imagination.

As he put it:  "The Fed intends to allow its massive MBS holdings-- an alternative form of long-term lending by the Fed-- to decline only gradually. Choosing to sell off some of these would be an important signal that the Fed's assessment of the economy and near-term plans have changed. Raising the discount rate would not."

My bad.