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Digg
The Federal Reserve authorized a tool that could be used to drain some of the liquidity it injected into the economy to fight the financial crisis.
The Fed on Friday said it approved the offering of term deposits for lenders who are eligible to collect earnings on their balances at the Fed’s Reserve Banks.
The tool could be used by the Fed if needed to sop up money built up in the banking system before the money excites inflation. The Fed’s total portfolio of loans and securities expanded after the financial crisis struck.
The central bank proposed the term deposits in December and asked for public comment.
Term deposits have specified maturity dates and are held by eligible institutions at Reserve Banks. The deposits will be offered through a term deposit facility.
“Term deposits will be one of several tools that the Federal Reserve could employ to drain reserves when policymakers judge that it is appropriate to begin moving to a less accommodative stance of monetary policy,” the Fed said.
It added the facility is “a matter of prudent planning and has no implication for the near-term conduct of monetary policy.”
This week, Fed officials voted to maintain interest rates in their very-low range. Policy makers said the U.S. economy continues to strengthen, but slack left over from the recession is large enough to warrant near-zero rates for an “extended period.” Officials noted the labor market is beginning to improve, but still-high unemployment is keeping a lid on consumer spending.
A report Friday showed the economy grew briskly in the first quarter, driven by a solid gain in conusmer spending. The data also showed inflation remained benign.
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There is so much money out there and its actual whereabouts unknown, will anyone even notice other than the big banks? I think the Fed is really ineffective. It all ends up lining the big boys pockets anyway.
I say you send “Vince” out with a truckload of Shamwows and he’ll sop up that excess liquidity in no time!
What kind of “Tool” is it? Or are they refering to the Giant Mutant Leach that lives on Capital Hill?
Real Time Economics offers exclusive news, analysis and commentary on the economy, Federal Reserve policy and economics. The Wall Street Journal’s Phil Izzo and Sudeep Reddy are the lead writers, with contributions from other Journal reporters and editors. Send news items, comments and questions to realtimeeconomics@wsj.com.
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