Monday, August 13, 2007

Fed injects $2B more into banking system

NEW YORK (CNNMoney.com) -- The Federal Reserve injected an additional $2 billion into the banking system Monday, marking the second time in as many sessions that the central bank has taken steps to help sooth jittery financial markets.

On Friday, the central bank injected $38 billion into the U.S. banking system in an effort to cool Wall Street fears about a credit crunch.

The New York Fed said in a statement it was ready to conduct additional operations during the day as needed.

On Wall Street, stocks were higher in midday trade.

Foreign banks have taken similar action, with the European Central Bank (ECB) adding another $65 billion into the European banking system Monday, the third session in a row. The Bank of Japan also added $5 billion, building on last Friday's addition of $8.5 billion.

Even though Friday's addition by the Fed marked its single biggest temporary addition since the Sept. 11 attacks, the ECB has far outpaced the Fed, funneling $280 billion into European markets.

"I come down on the side that perhaps the ECB overreacted," said Gregory Miller, chief economist at SunTrust Banks. "Had the Fed been the first to move, maybe they would have had to make a bigger addition."

Worries about tighter credit conditions have roiled global stock markets over the past few months, with the Dow industrials posting some of its biggest losses of the year in recent weeks.

Wall Street has looked to the Federal Reserve to help sooth market jitters, hoping that the central bank may cut interest rates.

On Friday, speculation emerged that the central bank may implement an emergency rate reduction before its next meeting.

Others believe that the Fed will maintain its "wait-and-see" stance, given that policymakers stressed that inflation remains their primary concern at last week's policy meeting. Top of page

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