Tags: US | Fed | Exit | Strategy

Fed Adopts Plan to Let Banks Set Up CDs to Drain Liquidity

The Federal Reserve has adopted a plan allowing banks to set up the equivalent of certificates of deposit at the central bank.

The move would help the Fed mop up money pumped out during the financial crisis and prevent inflation from taking off later.

Under the plan, the Fed would offer so-called "term deposits" that would pay interest. Doing so would provide banks with another incentive to park their money at the Fed, rather than having it flow back into the economy.

Once the economy is on firm footing, this would be one of the tools the Fed could use to tighten credit.

The Fed says Friday's action has "no implication for the near term conduct of monetary policy."

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The Federal Reserve has adopted a plan allowing banks to set up the equivalent of certificates of deposit at the central bank. The move would help the Fed mop up money pumped out during the financial crisis and prevent inflation from taking off later.Under the plan, the...
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