Fed may take action on liquidity within days: reports
By Steve Goldstein, MarketWatch
Last update: 4:27 a.m. EST Dec. 12, 2007
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LONDON (MarketWatch) -- After stock markets reacted with dismay to the
Federal Reserve's rate cuts, the central bank is now working on steps, which
could be announced in days, to help banks lend more easily to each other,
according to two separate reports.
The Wall Street Journal reported, without attribution, that Fed officials
continue to consider ways of using various tools -- including the discount rate
-- to combat banks' unwillingness to lend even to each other, which they view
as a threat to economic growth.
The central bank could take action within days, the Journal reported. See
A variety of steps, widely discussed in the markets, are likely to be on the
table. These include: another cut in the discount rate; longer-term loans to
money-market dealers; easier collateral rules for loans from the Fed; and other
steps last taken in 1999 to alleviate funding pressures ahead of the year 2000,
when many feared a "Y2K" computer bug would disrupt markets and create economic
havoc, the Journal reported.
Changes in the discount rate can be made by the Fed board in Washington
without the approval of the entire 17-member policy-making Federal Open Market
Committee, which sets the federal-funds rate target, the report added.
The Financial Times, also without attribution, said a new liquidity facility
could be announced as soon as Wednesday, with a facility that will auction
loans to banks.
This would allow the Fed to provide liquidity directly to a large number of
financial institutions against a wide range of collateral without the stigma of
its existing discount window loans, the FT reported.
The reports gave a lift to U.S. stock futures on Wednesday. Futures on the
Dow Jones Industrial Average rose 87 points. The main blue-chip index lost 294
points on Tuesday.
Stocks in Europe moved off lows as traders considered the reports.
Steve Goldstein is MarketWatch's London bureau chief.
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