Fed Injects $50 Billion Into Money Markets

The Federal Reserve said Tuesday it has injected a large amount of liquidity into the financial markets to keep them from seizing up, mere hours before the central bank's policy-making arm was set to deliver a decision on interest rates.

The Federal Reserve Bank of New York said that it has delivered $50 billion to money markets via overnight repurchasing agreements, or repos, and that it "stands ready to arrange further operations later in the day, as needed." In addition, the Fed said it also will conduct its usual Tuesday morning $20 billion, 28-day single-tranche repo.

The U.S. central bank joins others from around the world that are already pumping much-needed liquidity into markets that have suffered following the failure of Lehman Brothers (LEH Quote), which filed for Chapter 11 bankruptcy protection Monday, the surprise buyout of Merrill Lynch (MER Quote) by Bank of America (BAC Quote) and the potential collapse of AIG (AIG Quote).

Earlier, the European Central Bank injected 70 billion euros, or nearly $100 billion, in one-day funds into European money markets, more than doubling the 30-billion-euro injection the ECB announced Monday. Additionally, the Bank of England, the Bank of Japan and the Swiss National Bank all delivered extra funds to markets.

"This is smacking of desperation, which is why the markets aren't reacting very well," says Paul Nolte, director of investments with Hinsdale Associates. "When you're levered up, it takes a hell of a lot of money to get unlevered and make it worth anything. Now we're not just adding our liquidity, we're asking banks from around the world to add their liquidity."