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To: Vitalsigns who wrote (815)	9/18/2001 9:16:00 PM
From: Vitalsigns	Respond to of 2773

Fed Drives Key Rate Down to 0.25%, Below 3% Target (Update1) By Walden Siew New York, Sept. 18 (Bloomberg) -- The Federal Reserve drove down its benchmark interest rate close to zero to keep the financial system running after last week's terrorist attacks disrupted basic banking functions such as check clearing. The overnight interbank rate, or federal funds, tumbled to as low as 0.25 percent, 2.75 percentage points below the Fed's 3 percent target. The Fed pumped cash into the economy for a fifth day, lending $36.25 billion through repurchase agreements in which it buys securities for a set period before returning them to banks. Today's lending was more than six times the $5.3 billion daily average in the six weeks before the attacks. ``The Fed is adding a tremendous amount of liquidity,'' said Mike Cloherty, a bond strategist at Credit Suisse First Boston. The Fed is injecting money into the banking system like it did after the 1987 stock market tumble as part of efforts to keep capital available to companies and consumers and stave off recession. When the Fed cut its target for the overnight rate by a half point yesterday from 3.5 percent, it said it would add cash to the system as needed ``until more normal market functioning is restored.'' The Fed said its lending would push the overnight rate below target at times. In addition to selling repurchase agreements, or repos, the Fed has added cash to the system by letting banks borrow through its discount window. The cash injections, combined with a government plan to increase spending, added to investors' inflation concerns, helping drive down the price on 30-year Treasuries 1 21/32 to 97 20/32. The bond's yield rose 12 basis points to 5.54 percent. Other central banks including the European Central Bank and Bank of England have also cut key lending rates to give banks more cash and bolster their economies. Record Friday The Fed began increasing lending to banks after Tuesday's terrorist attacks. Its daily lending grew to $81.25 billion on Friday, the most cash it has ever injected into the banking system in a day, according to traders. The terrorist attacks, which destroyed New York City's World Trade Center, slowed the relaying of checks from bank to bank by halting air travel for days. Checks had to be transported by truck instead, adding to the time it took for banks to draw the funds backing up checks given to them from other banks. The central bank is putting money ``in the system to make sure there's enough liquidity for the banks to function normally,'' said Ward McCarthy, a managing director at Stone & McCarthy Research Associates in Princeton, New Jersey. Bankers said more checks are starting to arrive as the opening of airports Thursday has allowed financial institutions to send them by air again. ``Yesterday and today, we got an enormous influx of checks, three to four times the normal amount that we would have gotten,'' said Anthony Abbate, chief executive of Interchange Financial Services Corp., a bank in Saddle Brook, New Jersey. ``They were probably sitting somewhere and couldn't be moved.'' ©2001 Bloomberg L.P. All rights reserved. Terms of Service, Privacy Policy and Trademarks