The Federal Reserve Board & the Mortgage Crisis: Using All the Tools in the Box

Last week the Federal Reserve Board pulled out all the stops to address the impact of the subprime mortgage meltdown on the financial markets and the economy.  While the Federal Open Market Committee (FOMC) lowered the target federal funds rate only 25 basis points to 4.25% rather than the more substantial cut Wall Street wanted, the Federal Reserve also lowered the discount rate from 5% to 4.75% and, on Friday, made the announcement that today (Monday, Dec. 17, 2007) it would address liquidity problems by offering $20 billion in 28-day credit through its Term Auction Facility.  This mechanism is not well known, nor is it frequently employed.  Check out the Federal Reserve Board's explanation of how financial institutions can bid for Federal Reserve advances.

Link to Dec. 11, 2007, announcement of FOMC interest rate cut:  http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm 

Links to announcements of discount rate reductions:  http://www.federalreserve.gov/newsevents/press/monetary/20071211a.htm

http://www.federalreserve.gov/newsevents/press/monetary/20071212b.htm

http://www.federalreserve.gov/newsevents/press/monetary/20071213a.htm

Link to announcement of new liquidity provision: http://www.federalreserve.gov/newsevents/press/monetary/20071214a.htm

(ag) Dec. 17, 2007, in FRB/Economy/Interest Rates