Fed aims to create tool for drying up excess liquidity

12/29/2009 | Reuters

Preparing for a day it would need to put the brakes on the U.S. economy, the Federal Reserve is looking to launch a program for withdrawing excess liquidity from the financial system. The central bank would pay financial institutions interest on term deposits, probably ranging from one to six months. The Fed pays interest on banks' overnight deposits. "Term deposits would be one of several tools that the Federal Reserve could employ to drain reserves to support the effective implementation of monetary policy," the central bank said.

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