The Fed uses the money market to keep the central bank’s policy interest rate — the federal funds rate — in line with the desired range
The New York Federal Reserve Bank announced that it will increase daily injections of cash into financial markets by $25 billion to at least $175 billion to guard against the coronavirus.
Coming just two days after the central bank boosted the infusions by $50 billion to $150 billion, the increase "should help support smooth functioning of funding markets as market participants implement business resiliency plans in response to the coronavirus," the New York Fed said in a statement.
The Fed uses the money market to keep the central bank's policy interest rate — the federal funds rate — in line with the desired range.
Financial institutions use money markets to borrow for very short periods, from one day to a year, a crucial function to keep the gears of the economy running.
The central bank "will continue to adjust repo operations as needed," the statement said.
The Fed last week made an emergency cut in the benchmark borrowing rate, lowering it by a half-point to 1.0-1.25 percent to boost confidence in the face of increasing concerns the spread of COVID-19 could impact the US and global economies.
Economists say policymakers could deliver an even larger rate cut March 18 following the bank's regularly scheduled two-day meeting.
The New York Fed's latest move increases daily repurchase agreements or repos through April 13, and it will continue to offer $45 billion in two-week repos twice weekly for the coming month.
In addition, the Fed added three one-month repos of at least $50 billion each.
In so-called repurchase or "repo" agreements, banks borrow by putting up assets like Treasury notes as collateral and then repay the loans with interest the following day.
This lets them replenish the cash holdings they keep at the central bank whenever the amount falls below the required minimum set by the Fed.