Federal Reserve Injects 47 Billion Dollars

Today the Federal Reserve put its largest infusion into the US banking system since after the September 11th, 2001 attacks.

The 47.25 billion dollars in temporary reserves was put in to calm a raise in the overnight interbank lending rates as short-term lending rates have been rising in both the US and in Europe. This is because the two-month sterling rates hit a two-month high what is putting an upward pressure on the US money market.

This comes as investors are still worried about the effects of the subprime market. The Wall Street Journal reported today that GMAC’s residential home mortgage unit may be close to violating debt covenants due to its loss in net worth. GE also announced yesterday that it’s short-term bond fund ran into trouble amid losses on asset-backed securities and that all of its outside investors have liquidated their holdings.

The injection from the Federal Reserve today is also hoped to relieve some pressure that is on the commercial paper sector. The overall US commercial paper loans shrank to 1.862 trillion in the week ending November 14th which is down 3.6 billion dollars from the previous week. This is the 14th straight week that the size of the US asset backed commercial paper market has dropped.