Fed Injects Funds Into Banking System in Move to Lower Rates

The Federal Reserve today injected funds into the banking system in what economists said was a clear move to lower interest rates.

The Fed purchased $1-billion worth of securities from banks, adding cash to the banking system and thereby lowering the interest rate charged on overnight bank loans.

Fed Chairman Alan Greenspan had indicated that short-term rates would come down if a credible U.S. budget pact was reached. The deficit-reduction package was concluded by Congress over the weekend.

The federal funds rate, the overnight bank lending rate, stood at 7 3/4% at the time of the Fed action, or below the Fed’s previously presumed 8% target.

While a lower Fed funds rate would be welcome, a minor cut would probably not lead to a decline in the prime lending rate of 10% charged by commercial banks to their best corporate customers.