The Fed may now pay interest on bank reserves while it floods financial markets with liquidity, pushing down the overnight lending rate by about 0.75 percentage point to 1.25 percent.The next step? Comrade Gross is asking the Fed to start buying commercial papers and unsecured papers. Soon the Fed will own all the US dept securities, and is likely to also buy those abroad, since Paulson has to bail out China. Bernanke must be happy, this will bring a lot of profits for the Fed while it doesn't cost anything to print electronic money!
``Absolutely, it's a stealth easing,'' said John Ryding, founder and chief economist of RDQ Economics LLC in New York and a former Fed researcher.The announcement, and a Fed decision to double the auction of cash to banks to as much as $900 billion, failed to avert a 3.9 percent decline yesterday in the Standard & Poor's 500 Index.
Fed's stealth cut of interest rates
I mentioned it at several occasions previously (here for example): the Fed is going to cut rates to 1% and is shooting it's very last bullets and it is now confirmed by Bloomberg: Fed Sets Floor Below Rate Target, Engineering `Stealth' Cut