US: Credit Market

Fed Boosts Efforts to Loosen US Credit Markets


The Federal Reserve announced measures to pour more money into credit markets in a bid to ease persistent liquidity strains at U.S. financial institutions.

The Fed announced a boost in funding for its term auctions to $100 billion and said it would start a series of term repurchase transactions.

The Federal Reserve headquarters in Washington, DC.

The two measures are intended to "address heightened liquidity pressures in term funding markets," the Fed said in a surprise announcement.

The actions come as financial market turmoil festers despite a series of aggressive central bank rate cuts and liquidity infusions aimed at restoring market stability and shielding the economy from a housing slump and a credit crunch.

Analysts said the Fed's expansion of its term auctions makes it less likely the central bank will cut benchmark rates before its scheduled meeting March 18. Markets now widely expect the Fed to slash rates by three-quarters of a percentage point at that meeting.

"It's important that the Fed took steps to ease liquidity pressures since money markets are clearly suffering another bout of turmoil," said Jane Caron, chief economic strategist at
Dwight Asset Management in Burlington, Vermont. "This action will probably quiet rumors of a monetary policy easing taking place today."

Financial market attention on Friday focused on the government's announcement that U.S. employers cut 63,000 jobs in February. U.S. stocks fell sharply, Treasury prices jumped, and the dollar fell to record lows.

In news showing the sluggish economy is on even shakier footing than previously thought, the Labor Department revised January's jobs loss to 22,000 in from the 17,000 originally reported and said only 41,000 jobs were created in December, half the 82,000 originally reported. The back-to-back January and February job losses were the first consecutive monthly declines since May and June of 2003.

The Fed said it would increase amounts in its term auctions March 10 and March 24 to $50 billion each, a rise of $20 billion at each auction.

The central bank also said it would increase the amounts of these auctions if conditions warrant. It said that in a bid to provide "increased certainty" to market participants, it would
conduct term auctions for at least the next six months unless market conditions stabilize to the point such auctions are unnecessary.

The Fed also said it would initiate a series of term repurchase transactions that are expected to total to $100 billion.

Underscoring concern about the global reach of market turmoil, the Fed said it is in "close consultation" with foreign central bank counterparts about liquidity concerns.