Fed cuts discount rate
The Federal Reserve yesterday slashed the discount lending rate by a quarter-point to 3.25%, as part of a set of initiatives to bolster market liquidity and promote "market functioning.”
The Federal Reserve has slashed the discount lending rate by a quarter-point to 3.25%, as part of a set of initiatives that were announced on Sunday with the intention to bolster market liquidity and promote “market functioning.”
The move, which marks the Fed’s third unscheduled policy move in the past eight months, lowers the spread of the Federal Open Market Committee’s federal funds rate, which stands at 3%, to a quarter-point.
The discount rate applies to bank borrowing from the Federal Reserve, while the federal funds rate refers to the interest that banks charge when borrowing from each other.
The Federal Reserve Board also approved an increase in the maximum maturity of primary credit loans to 90 days from 30 days.
In another move, the Federal Reserve voted to authorize the Federal Reserve Bank of New York to create a lending facility to “improve the ability of primary dealers to provide financing to participants in securitization markets.”
This facility will be available for business on Monday and will be in place for at least six months and may be extended if needed.
Credit extended to primary dealers under this facility may be collateralized by a broad range of investment-grade debt securities, the Federal Reserve said.
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