The new tool is called the Term Securities Lending Facility and will lend the Treasury Securities to primary dealers for 28-day periods through weekly auctions. The Fed coordinated the effort with central banks in Europe and Canada, which plan to inject up to $45 billion into their banking systems.
The Fed's efforts show that it is concerned about the dwindling sentiment in mortgage debt, which could further threaten the housing crisis and the economic slowdown. Wall Street was looking for the Fed to outright buy mortgage debt but their actions today should alleviate some of the pain.
Fed Fund Futures, which predict the next Fed action, are now calling for a 50 basis point interest rate cut. A 75 basis point cut has gone from a 100% chance down to a 60% chance after the news. The next FOMC interest rate decision meeting is March 18.
Brought to you, courtesy of The Mortgage Market Guide
