Fed auctions $75b to ease credit stresses
WASHINGTON (AP) - May 20, 2008 The central bank on Tuesday announced the results of its most
recent auction - the 12th - since the program to help banks
overcome credit problems started in December.
It's part of an ongoing effort by the Fed to help ease the
credit crunch, which erupted last August and hit a crisis point in
March with the near collapse and forced sale of Bear Stearns, the
nation's fifth-largest investment house, to JP Morgan Chase & Co.
Housing, credit and financial problems have weighed heavily on
the economy, sharply slowing its growth.
In the latest auction, commercial bank paid an interest rate of
2.100 percent for the short-term loans. There were 75 bidders for
the slice of the $75 billion in 28-day loans. The Fed received bids
for $84.4 billion worth of the loans. The auction was conducted on
Monday with the results released on Tuesday.
In mid-December the Fed announced it was creating an auction
program that would give banks a new way to get short-term loans
from the central bank and to help them over the credit hump. A
global credit crunch has made banks reluctant to lend to each
other, which has crimped lending to individuals and businesses.
The smooth flow of credit is the economy's life blood. It
permits people to finance big-ticket purchases, such as homes and
cars, and help businesses expand operations and hire workers.
Wanting to avert a broader panic that could endanger the entire
U.S. financial system, the Fed has taken a number of extraordinary
action to provide relief. In its broadest extension of lending
authority since the 1930s, the central bank agreed to temporarily
let investment firms obtain emergency loans directly from the Fed,
a privilege that only commercial banks had been granted.
The central bank is expected to focus more on these and other
efforts to help banks and investment firms overcome any credit
problems as it winds down an aggressive rate-cutting campaign that
started last September.
To help bolster the economy, the Fed last month lowered a key
interest rate by one-quarter percentage point to 2 percent.
However, it signaled that may be the last reduction for some time.
The Fed is hoping that its powerful rate cuts along with the
government stimulus package of tax rebates will help lift the
economy out of its funk in the second half of this year.