Fed Adds $38.25 Billion to U.S. Reserves...

Reuters ^

[RCW2001]

Wednesday September 12 12:10 PM ET

Fed Adds $38.25 Billion to U.S. Reserves

NEW YORK (Reuters) - The Federal Reserve said on Wednesday it had added an unusually large $38.25 billion in temporary reserves to the U.S. banking system, pumping money into the financial system a day after hijackers flew two planes into the heart of Wall Street.

A spokesman for the New York Federal Reserve earlier said the Fed would add more reserves as needed.

U.S. bond and stock markets, along with futures exchanges in Chicago, were closed on Wednesday.

William McDonough, President of the New York Fed, who oversees U.S. monetary policy and plays a key role in ensuring stability in global financial markets, said on Tuesday the U.S. central bank was standing by to provide liquidity.

Wall Street bond dealers regularly act in conjunction with the New York Fed to adjust U.S. banking reserves. Morgan Stanley, one of those dealers, occupied several floors of the now-destroyed World Trade Center.

Wednesday's operation was the first open market action by the New York Fed since Tuesday's disaster.

[Hugh Akston]

FYI

[Moonman62]

The Federal Reserve said on Wednesday it had added an unusually large $38.25 billion in temporary reserves...

The key word here is that these are temporary. I was wondering if Greenspan would remain vigilant against prosperity and employment like he's been doing for the past two years. Since these reserves are temporary it's hard to tell. We should be optimistic that he's doing anything at all.

[Wyatt's Torch]

Thanks for the heads up. If it ends up being permanent, and enough, it could bail us out.

[clikker]

Could someone proficient in these matters please tell someone that is reasonably ignorant in Federal Reserve matters what this does, and how this will help us?

[DugwayDuke]

While interest rates usually get more attention, the amount of money in circulation is also important. (It doesn't matter if interest rates are low if there is no money to lend) This fed action is a strong signal that the fed will pump as much money as necessary into the system to prevent these terrorist attacks from causing a recession or worse. It also means that the fed will ensure that there is sufficient money to rebuild. A very good sign.

[lewislynn]

Fed Adds $38.25 Billion to U.S. Reserves...

Where'd they get it?

[Moonman62]

Could someone proficient in these matters please tell someone that is reasonably ignorant in Federal Reserve matters what this does, and how this will help us?

Since this is a temporary, all it really does is protect financial institutions who borrow and lend money to each other. Institutions that have to borrow money to meet their reserve requirements will get a lower rate, which is called the "federal funds rate."

The temporary nature of these reserves means that it won't help individuals or corporations directly at all, except the indirect and valuable benefit we get from a financial system that won't collapse when the stock and bond markets start trading again.

[Moonman62]

Where'd they get it?

The Federal Reserve purchased government securities held by financial institutions in order to boost their reserves in a time of crisis. Since it's temporary in nature the financial institutions must buy them back from the Federal Reserve on a predetermined date, probably in a few days.