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U.S. markets closed up after the Federal Reserve announced Wednesday "measures designed to address elevated pressures in short-term funding markets."

Actions include:

• The establishment of a temporary Term Auction Facility [TAF].
• The establishment of foreign exchange swap lines with the European Central Bank and the Swiss National Bank.

The TAF involves the Fed auctioning term funds to banks against a wide variety of collateral. Speculation is that banks will be more inclined to take loans through the new facility, which pits bank against bank in an auction process, than the 'stigmatized' discount window. The first TAF auction is scheduled for Monday. It will auction $20 billion for 28 days. A Thursday $20B auction will provide 35-day funds. "Experience gained under this temporary program will be helpful in assessing the potential usefulness of augmenting the Federal Reserve’s current monetary policy tools--open market operations and the primary credit facility--with a permanent facility for auctioning term discount window credit," it said.

The swap lines will provide up to $20 billion and $4 billion dollars to the ECB and Swiss National Bank, respectively, for use in their jurisdictions, for up to 6 months. Central banks of Canada and the ECB also chimed in with measures aimed at increasing unusually tight liquidity.

The possibility of further Fed action after Tuesday's 'disappointing' 0.25% rate cut had been speculated in the media (full story).

Initial reaction to the move was positive.

"In a very short-run, this is a very huge plus for riskier assets and it definitely explains why the Fed made no change to the discount rate yesterday. They had this plan up their sleeve and were waiting for today to make the announcement," Forex.com strategist Brian Dolan said.

"I like the attempt of trying something a little different than just easing, which hasn't seemed to do the trick. Maybe going at it a different way will have better results," Wells Capital's Jim Paulsen said.

Some were critical of the timing.

"This looks a bit more comprehensive at first blush than people were expecting, though I still think we could have avoided a 300-point drop in the stock market and a huge amount of currency volatility if we had received this information yesterday. I don't quite understand the process of getting the information out," TD Securities currency strategist Shaun Osborne said.

Sources: Reuters

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