Fed croons, acts
[I’m guessing that lowering the discount rate while reaffirming the
fed funds rate level is a way to target banks having real funding
problems, while not easing up too much for the real economy, where
the unemployment rate is still too low.]
http://www.federalreserve.gov/boarddocs/press/monetary/2007/20070817/default.htm
Financial market conditions have deteriorated, and tighter credit
conditions and increased uncertainty have the potential to restrain
economic growth going forward. In these circumstances, although
recent data suggest that the economy has continued to expand at a
moderate pace, the Federal Open Market Committee judges that the
downside risks to growth have increased appreciably. The Committee is
monitoring the situation and is prepared to act as needed to mitigate
the adverse effects on the economy arising from the disruptions in
financial markets.
http://www.federalreserve.gov/boarddocs/press/monetary/2007/200708172/default.htm
To promote the restoration of orderly conditions in financial
markets, the Federal Reserve Board approved temporary changes to its
primary credit discount window facility. The Board approved a 50
basis point reduction in the primary credit rate to 5-3/4 percent, to
narrow the spread between the primary credit rate and the Federal
Open Market Committee’s target federal funds rate to 50 basis points.
The Board is also announcing a change to the Reserve Banks’ usual
practices to allow the provision of term financing for as long as 30
days, renewable by the borrower. These changes will remain in place
until the Federal Reserve determines that market liquidity has
improved materially. These changes are designed to provide
depositories with greater assurance about the cost and availability
of funding. The Federal Reserve will continue to accept a broad range
of collateral for discount window loans, including home mortgages and
related assets. Existing collateral margins will be maintained. In
taking this action, the Board approved the requests submitted by the
Boards of Directors of the Federal Reserve Banks of New York and San
Francisco.