Fed's Term Auction Facilities Lack Meat For Hungry Market

A procedural announcement from the Federal Reserve is being blamed for the stocks going from positive by about 9 points to being down by 2 points this morning.  The market wanted something at least reminiscent of yesterday’s talk of coordinated rate moves or much larger liquidity injections.  Unfortunately, all they are getting so far as term auction facilities rather than rate cuts or large infusions that help get bad assets off the books of banks.

The Federal Reserve and other central banks released an updatedschedule of all of the auctions it will hold this quarter under aspecial program to aid ailing banking institutions to revive creditmarkets.  They will conduct auctions of 28-day credit through the termauction facility with $150 billion in each of the following auctions:October 20, November 17, and December 15.  Two forward term auctionfacilities are now tentatively scheduled for November 10 and November24.

The important issue here is that these are large facilities but arevery short-term in nature.  This offers much less meat in the burgerthan what everyone was hoping for yesterday.  We’ll see if the Fed getsthe message or if they will just stick with this.

PIMCO’s Bill Gross has called for overnight rates in the U.S. to be cut down to 1% from 2%.  Stay tuned.

Jon C. Ogg
October 7, 2008