The Federal Reserve took highly unusual steps Friday to open up the supply of cash to the nation's banks and signaled a willingness to cut interest rates if necessary, at a time when some of the safest financial markets are seizing up and threatening the broader economic outlook.
Specifically, the central bank lowered the discount rate, charged on direct Fed loans to banks, to 5.75% from 6.25%, and took steps to encourage banks to borrow from what is known as its discount window, such as lengthening the term of such loans to as long as 30 days from the current one day. Fed officials also joined a conference call with leading financial executives, aiming to ensure the Fed's moves have maximum impact by making clear that officials are actively inviting more borrowing from the Fed.
The central bank has now used most of the tools at its disposal for restoring normalcy to the markets. If these steps fail, its only major weapon left is a cut in the federal-funds rate target -- perhaps even on or before its next meeting on Sept. 18. The futures market indicated traders expect the Fed to cut rates at least a quarter point at its September and October meetings, and down a full point from the current 5.25% to 4.25% by the end of the year.Read more in the Wall Street Journal
