Fed Holds New Power to Pay Interest on Reserves
Monday, October 27th, 2008
One of the primary ways that the Federal Reserve has of tweaking the economy is to change the interest rate tied to loans it makes to the central banks. However, this wasn’t seen as sufficient during this historic credit crisis. They continue to look into new ways to make the central banks more stable, so they can continue to loan monies, and also to give an incentive to the markets to continue trading.
Whether this will actually work, no one knows. It will take time to see the effects of these moves on the markets. Right now, regional banks are not in a lending move and it doesn’t appear that the actions have had much effect from the consumer standpoint. However, from a banking standpoint, it may be relieving much of the fear of having no funds, should a run on the bank occur, or not making sufficient monies to cover operating expenses.
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