Fed turns it up to 11

Fed Boosts Lending to Banks as Credit Rout Continues (Bloomberg)

Fed Acts to Boost Liquidity (Calculated Risk / Federal Reserve)

This is not the emergency rate cut I predicted, but it is still rather dramatic.  Back in December, the Fed introduced the Term Auction Facility (TAF), which is essentially the discount window run in reverse; instead of banks coming to the window, the Fed forcibly injects the cash.

Until now, the Fed has compensated for the TAF auctions by pulling liquidity out in open market operations.  But today’s press release suggests they plan increases in both the TAF and the open market repos, and I do not see how they can do that without driving the overnight Fed Funds rate below their nominal target.  Which probably means I am missing something.

Frankly, I am surprised the stock market is holding up so well in the face of the greatest financial crisis in my lifetime.  Yet another reminder why I never put money behind my short-term predictions.