Federal Reserve reduces the amount of planned credit auctions

A Fed statement says the Federal Reserve on Thursday began undoing an extraordinary series of financial market interventions. But the nation's central bank, signaling that the economy remains fragile, also hedged its bets by extending into 2010 several programs that were due to expire this fall.

The Fed cut down on the amount of planned credit auctions in its Term Auction Facility, a program designed to provide funds for cash-strapped institutions. In the most recent auction on June 15, banks borrowed just $48 billion, well below the $150 billion the Fed made available. In addition, it reduced the frequency of a second auction program, the Term Securities Lending Facility, and eliminated a program designed to support money market mutual funds.

Chief economist for Moody`s, John Lonski said that corporations are raising more money from bondholders: $657 billion in investment-grade bonds were issued so far this year, up 22% from the same period last year.

Though the progress suggests that the Fed's multifront campaign against financial collapse has made progress, the situation still remains far from normal. Spreads are still well above their long-term average, and jumpy markets are exposed to additional shocks.

That explains the reason for extending to February 1 four credit-boosting programs that were due to expire on Oct. 30. Besides, it extended temporary arrangements that help 14 foreign central banks meet demand for U.S. dollars in their countries. Keeping the programs alive into 2010 also provides insurance against any year-end credit crunch that could result from institutions' traditional drive for cash as they close out their annual accounts.