US Federal Reserve reduces borrowing costs

The US Federal Reserve will take further action today as they plan to provide as much as $900 billion in cash loans in order to break the chain of the credit clog that has threatened the economy.

The action taken will have an affect on financial institutions, which are moving money to lend to each other, as well as individuals and businesses to increase the flow of money.

In the current faltering state of the US economy it is difficult to borrow money freely due to the high costs of borrowing but also due to the insecurity as cuts are rife, as is the reduction in capital investments.

The central bank used its newly granted powers to set a floor under its main interest rate which is lower than the 2 percent target set last month by policy makers, which means that the Fed may now pay interest on bank reserves, whilst also being able to increase the liquidity in financial markets.

The move meant that the overnight lending rate reduced by about 0.75 percentage point to 1.25 percent.

The Fed now requires banks to keep a level of reserves at the central bank and by paying interest on those at a staggered rate, the Federal Reserve are encouraging the flow of cash.

Story link: US Federal Reserve reduces borrowing costs