The Fed Expands Lending Programs

October 6, 2008

 

The Federal Reserve announced today a substantial expansion in the size of its Term Auction Facility (TAF) to strengthen its support of term lending markets.  These auctions allow depository institutions to borrow from the Fed for a fixed term of 28 or 84 days by pledging same type of collateral that is acceptable through the discount window.  The rate paid for the lending is determined at auction.  In addition, the Fed is consulting industry experts on additional ways the Fed or the Treasury could provide support for unsecured lending in the market.

 

The Fed also announced it would begin paying interest on reserves held at the Fed sooner than originally planned.  Interest will be paid on both required reserves and excess reserves, but at different rates.  The rate paid on excess reserves will be initially set at the average targeted federal funds rate over each maintenance period less 75 basis points.  Required reserves will be paid a higher rate of interest at the average targeted fed funds rate for each reserve maintenance period minus 10 basis points.  The changes will take place beginning October 9^th. 

 

Kristin Brewer
Sr. Portfolio Manager

 

 

Review of This Week’s Key Releases:
Tue, Oct 7-	Consumer Credit	Aug Est	$5.0B vs $4.6B
Wed, Oct 8-	Pending Home Sales	Aug Est	-1.2% vs -3.2%
Thu, Oct 9-	Wholesale Inventories	Aug Est	+0.4% vs +1.4%
Fri, Oct 10-	Trade Balance	Aug Est	-$59.0B vs -$62.2B
Fri, Oct 10-	Import Prices	Sep Est	-2.8% vs -3.7%

 

 

 

Next FOMC Meeting:
Wed, Oct 29-	Fed will monitor long-term inflationary pressures in respect to stable long-term economic growth.
	Current target rate – 2.00%