What the Fed's New Action this Morning Means
The Post's Neil Irwin reports that Federal Reserve just announced new steps to inject cash into the financial system, another expansion of its efforts to get banks to stop hoarding cash.
The Fed said it will immediately take advantage of authority it was granted in the financial rescue package President Bush signed on Friday. The central bank will now pay interest on the reserves that banks must keep with it. That is significant because it will give banks greater incentive to keep funds in reserve, which makes it easier for the Fed to maintain the federal funds rate, which it sets, at its target level.
That, in turn, gives the Fed more leeway for aggressive programs to try to force cash into the banking system without distorting the federal funds rate in the process. This morning, the Fed said it will double the size of planned "term auction facilities," which push cash into banks, to $150 billion, from $75 billion.
-- Michael S. Rosenwald
Posted by: nofluer | October 6, 1908 10:36 AM | Report abuse
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