Fed pares bond fee, holds firm on rates

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WASHINGTON – The Federal Reserve halved the fee that bond-dealers pay on Treasuries as Chairman Ben S. Bernanke continued to strive to stem the damage from the mortgage market’s collapse without lowering the benchmark federal funds rate, according to Bloomberg News.

The Fed slashed the so-called minimum fee rate from 1.0 percent to 0.5 percent, the lowest since the program began in 1999, New York Fed spokesman Andrew Williams said. “We are doing it to provide additional liquidity to the Treasury financing market.”

Treasury yields rose on the news, with the yield on three-month bills increased 0.52 percentage points to 3.61 percent, the highest since 2000. “We’re seeing more calming of the market as T-bill rates come back to normal,” Holly Liss, a bond saleswoman at Citigroup Global Markets Inc., told Bloomberg.

Analysts expect the Fed to cut its benchmark lending rate – now 5.25 percent – by at least a quarter point before the policymaking Federal Open Market Committee’s next regular meeting on Sept. 18. “Financial volatility and the seizing up of credit markets raises the probability [of a recession],” said Steven Einhorn, vice chairman of New York hedge fund Omega Partners Inc. “The Fed needs to be proactive and not wait.”

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But Richmond Fed President Jeffrey Lacker – noting that business and consumer spending continues to grow – said that federal monetary policy must not be guided just by the markets. “The Federal Reserve isn’t responsible for the size of credit spreads,” he said. “We leave those to be market-determined. Our responsibility and what we are capable of influencing on a sustained basis is inflation and growth.”

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