US Federal Reserve on Friday announced moves to pump $200 billion into the cash-strapped banking system amid tightening credit from the worst housing slump in decades. The central bank said it had coordinated closely with foreign central banks to take action “to address heightened liquidity pressures in term funding markets.” The announcement came just minutes before the Labor Department reported the economy lost 63,000 nonfarm jobs in February, triple the market expectation. It was the second consecutive month of job losses and triggered alarms that the world's largest economy is heading for a steeper slowdown. The Fed mounted a two-pronged offensive to combat the seizing up of credit as the economy struggles with spiking foreclosures and fading consumer confidence, raising the specter of recession. The central bank sharply hiked the amounts available this month to a combined $100 billion in its Term Auction Facility, a program launched in December to relieve elevated pressure in the short-term, interbank funding market. The TAF auctions on Monday and March 24 each will be increased to $50 billion, an increase of $20 billion from the amounts that were announced for the auctions on Feb. 29. “The Federal Reserve will increase these auction sizes further if conditions warrant,” it said in a statement. “To provide increased certainty to market participants, the Federal Reserve will continue to conduct TAF auctions for at least the next six months unless evolving market conditions clearly indicate that such auctions are no longer necessary.” The Fed also said it was launching Friday a series of term repurchase transactions that are expected to reach $100 billion. The repo transactions will be conducted as 28-day term repurchase agreements in which lenders may elect pledge collateral of Treasury, agency debt, or agency mortgage-backed securities. The sizes of these operations would be increased “if conditions warrant,” the central bank said. “This will immediately add liquidity directly into the banking system where it is desperately needed,” said David Kotok, an analyst at Cumberland Advisors. Andrew Busch, an analyst at BMO Capital Markets, noted that the Fed was acting “because the credit markets have seized up and spreads to agency debt have soared. Kotok highlighted the severity of the credit squeeze which has led embattled banks to write down billions of dollars in assets and made them reluctant to risk lending. “The Fed also knows that many banks do not trust their lending directly to other banks. They fear the risk. By increasing the TAF the Fed is saying to the banks: ‘Come to me. You do not have to go to another bank; you can get money from me,'” he said. Most economists expect the Fed to cut interest rates again at its March 18 meeting to ward off recession after the economy grew by a meager 0.6 percent in the final quarter of 2007, down from a 4.9 percent pace in the third quarter. The Fed has slashed 2.25 percentage points off its base federal funds rate, which is currently pegged at 3.00 percent. Confidence in the US economy dropped to a new low as worries about a possible recession, persistent problems in the housing and credit markets and lofty energy prices put Americans in a more gloomy mind-set. According to the RBC Cash Index, confidence sank to a mark of 33.1 in early March, down from 48.5 in February. The new reading was the worst since the index began in 2002 and surpassed the previous low reached in February. “The US consumer is definitely in full defensive mode,” said T.J. Marta, a fixed-income strategist at RBC Capital Markets. The continued deterioration in confidence comes even as Federal Reserve Chairman Ben Bernanke has signaled that the central bank will keep on cutting a key interest rate to bolster the economy. Congress and the White House, meanwhile, have speedily enacted a relief package that includes tax rebates for people and tax breaks for businesses. Rebates of up to $600 (¤400) for individuals or $1,200 (¤800) for married couples should start going out in May. Over the past year, consumer confidence has fallen sharply, underscoring the toll of the ailing housing market and a credit crunch that has made it more difficult for people to secure financing for big-ticket purchases such as homes and cars. Last March, confidence stood at 92.3. The index is based on results of the international polling firm Ipsos. __
