Fed Cuts Bank Discount Rate to Boost Liquidity

The Federal Reserve raced to buck up an anxious financial sector today by cutting its discount rate to banks by a quarter point, to 3.25%, the AP reports. It also created a new lending facility to aid investment banks with short-term loans. The moves are "designed to bolster market liquidity and promote orderly market functioning," the Fed said. "Liquid well-functioning markets are essential for the promotion of economic growth."

The lending facility will be active for a minimum of 6 months and "may be extended as conditions warrant," said the Fed. It will accept a variety of collateral to support the loans. The rate cut comes 2 days ahead of the Fed's monthly meeting and applies only to short-term loans that institutions get from the Fed. (More Federal Reserve stories.)