The fed funds rate is used to set rates for a wide variety of consumer loans, including home equity lines and credit cards, as well as for many business loans. The lower the rate, the more the Fed hopes to spur economic activity.
While rate cuts are traditionally the key tool the Fed uses to stimulate the U.S. economy, it has had to take other steps to address the current credit crisis.
The Fed has loaned hundreds of billions of dollars to banks through a new lending facility and is starting to loan money directly to major businesses by purchasing commercial paper, which is what some banks and businesses use as their primary method to fund day to day operations. To top of page.
Lending rates: Meanwhile, the credit market continued to improve, with Libor, the overnight bank-to-bank lending rate, falling to 1.14% from 1.24% the previous day, according to Dow Jones. The 3-month Libor fell to 3.42% from 3.47%.The TED spread, the difference between what banks pay to borrow from each other for three months and what the Treasury pays, widened to 2.81% from 2.71% Tuesday. The spread hit a record 4.65% earlier this month. The narrower the spread, the more willing banks are to lend to each other.The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, slipped to 0.57% from 0.75% late Tuesday, showing investors would rather see little return on their money than risk the stock market.
