Tuesday, October 07, 2008

Bloomberg.com: Worldwide

Wow. This is about as interesting as Money and Banking can get! But fortunately this is really interesting! Stealth easing. Nice new term!

Bloomberg.com: Worldwide:

"The central bank used power granted under last week's financial-rescue legislation to effectively set a floor under its main interest rate that's lower than the 2 percent target set by policy makers last month. The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent.

``Absolutely, it's a stealth easing,'' said John Ryding, "
"By paying interest on reserves, the Fed can pump more cash into the financial system without worrying the overnight lending rate will drop to zero at the end of each day as banks withdraw excess reserves. The move doesn't preclude a further reduction in the target rate by the Federal Open Market Committee."
Told you it was interesting! While we can argue about whether it is too little too late, any increase in liquidity that they can offer is definitely a step in the right direction!

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