Fed Auctions

The Federal Reserve announced today that it is increasing the amount of money available to banks through the new auction process it created to ease the nation's severe credit squeeze. The Fed again pledged to continue the auctions "for as long as necessary."

This announcement from the Fed came after today’s release of a government report showing that the jobless rate shot to a two-year high of 5% in December, raising concerns about a possible recession. The worry is that a severe slump in housing, soaring energy prices and the credit crisis that hit in August will combine to push the country into a full-blown downturn.
The Fed’s auction announcement indicates to analysts that the process it began in December (after efforts to inject funds into the banking system through direct loans to banks had not been as successful as hoped) has been successful in providing a source of loans for cash-strapped banks.

The amount offered at each of the next two auctions will be increased from $20 billion to $30 billion. Those two auctions will be Jan. 14 and Jan. 28. In a brief statement, the Fed said that it planned to continue to conduct the auctions every two weeks "for as long as necessary to address elevated pressures in short-term funding markets."

Amidst the negative speculations that the US economy is heading straight for a recession, the Fed continues to take slow steps. Despite the three less-than-exciting key rate cuts since September, analysts predict that the December jobless report increased the likelihood that the Fed will CONTINUE cutting interest rates as a way of boosting economic growth.


Stephanie Stanina