Friday, November 2, 2007

What The Fed Didn't Tell You?

As expected the Fed cut rates by 1/4 of 1%, or 25 basis points, but behind the headlines, the WSJ reported that the Fed pumped in more money into the financial system since the "credit crisis" took hold in August. This injection suggests that lending institutions are still wary to lend as the short-term debt markets are still sluggish (mortgage apps may be up in the past few weeks, but funding sources have dried up, even in commercial where Greenstreet Commercial (8th largest commercial lender) closed operations this past week).

NEW YORK -- The Federal Reserve pumped a total $41 billion to the U.S. financial system in three separate operations Thursday, amounting to the largest injection of funds since the liquidity crisis took hold this summer.

The size of the injection may come as a surprise, coming just a day after the central bank delivered its second consecutive rate cut. Wednesday's 25 basis point cut -- which brings the target rate to 4.5% -- follows a half percentage-point drop in September, which was intended in part to help ease stubbornly high lending rates in the interbank market.

The New York Federal Reserve's Web site announced a one-day repurchase of $12 billion, alongside a $21 billion seven-day, and a $8 billion 14-day operation. The total exceeds the $38 billion injection back in August that marked the largest contribution to the market in a single day since the World Trade Center attacks in 2001.

"This morning's combined RP package of $41 billion is significantly larger than we had expected based on our tentative reserve projections," said Lou Crandall, chief economist with Wrightson ICAP.

No comments: