Fed's Special Auctions Will Continue Indefinitely

by: Roy Mehta

The Fed plans on holding biweekly emergency auctions to increase liquidity and restore faith in money markets for as "long as necessary." The Fed and European Central Bank loaned $30 billion in 35-day funds Friday with an interest rate of 4.67%, below the 4.75% rate banks are charged at the Fed's discount window. "The Fed finally gets it,'' said Andrew Brenner, co-head of structured products at MF Global. In early December, the ECU and U.S. Fed along with three other major banks around the world said it would inject cash into markets by holding special auctions. Two auctions have passed, and the next two were scheduled for January 14th and 18th. The new announcement will extend these auctions until signs of stability return to the credit markets. "The Fed is being nimble in terms of managing reserves and these temporary liquidity problems," said Kenneth Kim, an economist at Stone & McCarthy Research Associates. "I don't think they will have to do much more but it's a good sign."

Sources: Bloomberg

Seeking Alpha's news briefs are combined into a pre-market summary called Wall Street Breakfast. Get Wall Street Breakfast by email -- it's free and takes only seconds to sign up.