Treasury to Divert Funds from Fed

The Treasury Department has decided to move a significant amount of funds from the Federal Reserve to other locations throughout the duration of the financial crisis. This move allows the Federal Reserve to freely loan funds to the market without having to impact the federal funds rate, which has important significance to banks and other lenders.
 
Right now, Treasury holds $200 billion in a Supplementary Financing Account with the Fed, but it plans to cut that amount to $15 billion over time. Analysts think that this move comes as part of the Treasury’s attempt to avoid hitting the federal debt ceiling, an event that would halt federal spending.
 
The Treasury has encouraged lawmakers to raise the federal debt ceiling, but no legislative action has yet been taken and the ceiling is expected to be reached by mid-October. Until Congress acts, the Treasury Department will have to take drastic action to avoid hitting the ceiling so soon, with the movement of funds from the Fed serving as one of these actions.

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