Fed auctions billions, fighting credit crisis

February 12, 2008 9:35:42 AM PST
The Federal Reserve, seeking to combat the effects of a serious credit crisis, aid Tuesday it had auctioned $30 billion in funds to commercial banks at an interest rate of 3.010 percent.It's the fifth in a series of auctions aimed at pumping over $130 billion into the nation's banking system.

The goal is to give cash-strapped banks with extra reserves. The Fed's hope is that the increased resources will keep banks lending and prevent a severe credit squeeze from making the current economic slowdown worse.

The fed's effort appears to be having success. The 3.010 percent interest rate is the lowest rate for any of the five auctions held so far. It was slightly below the previous auction where the interest rate had been 3.123 percent.

The first two auctions in December had seen rates for the funds provided at 4.65 percent and 4.67 percent while the first auction in January had seen a rate of 3.95 percent.

Analysts said the sharp decline in rates for the past two auctions represented the Fed's aggressive rate cutting that occurred in January, when it slashed its target for the federal funds rate, the interest that banks charge each other, by 1.25 percentage points, the biggest one-month rate cut in more than two decades.