U.S. Fed dusts off old play to soothe money markets

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The U.S. Federal Reserve on Tuesday injected billions of dollars into the financ...

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NEW YORK - The U.S. Federal Reserve on Tuesday injected billions of dollars into the financial system with a move it has not used in more than a decade to calm money markets, as lending dwindled partly due to huge payments for taxes and bond supply.

The temporary shortage of cash was due to quarterly corporate tax payments and the settlement of $78 billion in supply of Treasuries sold last week, analysts said. The surge in borrowing costs, which banks and Wall Street pay to raise cash to fund their trades and loans, also exposed cracks in money markets left by the Fed’s normalization of its massive balance sheet that ended in July, analysts said.

In the repo market, banks and Wall Street dealers use securities as collateral to obtain cash from money market funds and other cash investors.

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