Federal Reserve lowers bank rates

by Richard Kilner

Story link: Federal Reserve lowers bank rates

The US Federal Reserve has cut its discount rate by 25 basis points, to just 3.25%.

The range of institutions permitted to borrow at the discount rate was increased, so that primary dealers are now eligible.

The Federeal Reserve also created a new facility, named the Primary Dealer Credit Facility (PDCF).

The PDCF will function by accepting a broad range of collateral, including mortgage-backed securities, and is expected to remain in place for a minimum of six months.

In recent times the Federal Reserve has been called upon to deal with an increasing number of financial crises, most recently Bear Stearns, the bank that required emergency funding.

In the wake of the credit crunch the central bank has attempted to loosen up short term funding, the PDCF being its latest measure.

A scheduled meeting is set for Tuesday, when the Federal Reserve is predicted to slash the fed funds rate by anything from 50 to 100 basis points.