WASHINGTON - The Federal Reserve, seeking to combat effects of the credit crisis, said yesterday it had auctioned another $30 billion in funds to commercial banks, at an interest rate of 3.080 percent. It was the sixth in a series of auctions that so far have pumped $160 billion into the nation's banking system in an effort to provide cash-strapped banks with extra reserves.
The Fed's hope is that the increased resources will keep banks lending and prevent a severe credit squeeze from making the current economic slowdown worse.
The 3.080 percent interest rate set at the auction was down from a rate of 3.010 percent at the last auction held on Feb. 11. It was the lowest rate for any of the six auctions held since the Fed started this new process in December.
Analysts saw the steady rate declines as evidence that the Fed was having success at supplying funds to the nation's banks. They said it also reflected the aggressive rate cuts in January.
The central bank cut its target for the federal funds rate, the interest that banks charge each other, by 1.25 percentage points, the biggest one-month move in a quarter century, as it stepped up efforts to keep the weakening economy from falling into a recession.
Federal Reserve chairman Ben Bernanke is scheduled to deliver the Fed's twice-a-year economic report to Congress today. Financial markets are closely watching to see whether Bernanke signals further rate cuts will be likely, given a string of weak economic reports, or whether he will raise concerns about a jump in inflation that occurred in January which could mean the Fed is rethinking the pace of its rate cuts.
The Fed adopted its new auction process in December after it had only limited success in encouraging banks to use its "discount window" where the Fed makes direct loans to commercial banks.
The Fed began with two auctions totaling $20 billion each in December and then upped the auction amount to $30 billion for each auction beginning with two auctions in January and two more in February.
The total of bids from banks at the auction this week was $67.96 billion for the $30 billion that was provided in short-term 28-day loans.