Recent Fed Action
Our Thoughts:
March 11th, 2008
The Fed injected $200B in liquidity by financing/exchanging mortgage securities from Fannie Mae, Freddie Mac, banks, and other primary dealers. The Fed also increased the time frame for this treasury lending from 1 day to 28 days, and gave lenders the option to roll the Treasury lending over longer than 28 days. In doing this The Fed is allowing lenders, banks, and even hedge funds the opportunity to swap their mortgage backed securities for treasuries instead of having to sell them on the open market.
This move should shore up substantial over-liquidity and reduce the fire sales that are pushing overall prices down. Banks can also now get back to their lending practices and have the liquidity needed to offer money to qualified lenders. The Fed will only accept high quality issues ensuring that this is not a sub prime bailout.
Prior to today's move street expectations were for a 75bp rate reduction at the next Fed meeting on Mar 18. Expectations are now for a 50bp cut. |
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