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July 9th 2008

Fed Increases Liquidity

In a bid designed to placate skittish investors, America’s Federal Reserve Bank announced that it will extend the duration of its liquidity facilities at least through 2008 and possible into 2009. It is hoped that the continued enabling (which began several months ago) of certain Wall Street firms to borrow on especially favorable terms will prop up faltering credit markets. Given that both credit conditions and the economy at large continue to flounder, this move seems more symbolic than anything. Analysts are divided about whether this increased liquidity will serve as a complement or a substitute for a near-term interest rate hike. Futures prices had previously reflected a 65% chance that the Fed would hike rates in September, but the bet is now closer to even money. Reuters reports:

Others…think liquidity problems and inflation concerns are two separate issues. [One analyst] believes that the Fed is still on track to raise rates in
September.

Read More: Dollar rises as Bernanke calms financial markets

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Posted by Adam Kritzer | in Central Banks, US Dollar | No Comments »

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