Fed Injects $50 Billion Into Money Markets - TheStreet

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)

, which filed for Chapter 11 bankruptcy protection Monday, the surprise buyout of

Merrill Lynch

(MER)

by

Bank of America

(BAC) - Get Report

and the potential collapse of

AIG

(AIG) - Get Report

.

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."

The drastic moves by the world's central banks follows the worst day for U.S. equities in years. The

Dow Jones Industrial Average

dropped a staggering 504.48 points, or 4.4%, Monday to 10917.51, its worst single-day point drop since the market reopened six days after the terrorist attacks of Sept. 11, 2001. The

S&P 500

sank 58.74 points, or 4.7%, to 1192.96. The

Nasdaq Composite

slumped 81.36 points, or 3.6%, to 2179.91.

Later Tuesday, the Federal Open Market Committee will release its interest-rate policy statement. A week ago the Fed was expected to leave the fed funds rate unchanged at 2%, but recent events have increased the likelihood of a 25-basis-point cut at this meeting to 100% and a 50-basis-point cut to 20%.