Fed adds billions to markets

NEW YORK – The U.S. Federal Reserve has pumped $25.5 billion in liquidity into the financial system so far this week, raising concerns of continued troubles in short-term funding markets.

The central bank released $8.5 billion in cash on Tuesday and $6.5 billion on Wednesday.

The intervention came after the Fed pumped out $10.5 billion on Monday.

The Fed’s move raised the possibility of more troubles in short-term funding markets.

However, the central bank’s overnight rate has remained close to its target of 4.75 percent, suggesting that borrowing and lending in the federal funds market are properly functioning.

Veteran money-market watcher Lou Crandall of Wrightson ICAP downplayed the Fed’s operations this week, saying “there is no sign this is a response to anything” other than technical pressures in the Fed funds market.

The Federal Reserve regularly intervenes in financial markets to achieve the monetary policy goals of the central bank’s Federal Open Market Committee.

The interventions influence activity in the federal funds market, where banks borrow and lend short-term funds.

Wednesday also marked the end of the two-week maintenance period for reserves, which can increase volatility.

Also Wednesday, markets saw safe harbor assets catch fire as investors looked for a secure place to land.

Treasury bills garnered a solid bid, with the bond yield equivalent on the three-month bill plunging 0.14 percent in Wednesday morning trading before rising to 3.87 percent, down 0.12 percent.