The Federal Reserve said on Tuesday it would cut the rates it charges on cities and states seeking short-term loans under an emergency lending program that has had little success so far .
The changes to the program must be approved by the Treasury Department, which approved $ 35 billion to cover losses on up to $ 500 billion in loans granted by the Fed.
Municipal bond strategists and some Democratic lawmakers have expressed disappointment in recent weeks at the extent to which the Fed has positioned the program as a safety net, although Fed officials say the simple announcement of the program in April has Helped to significantly reduce borrowing costs for well-rated municipal issuers.
With Tuesday’s changes, the Fed will reduce the interest rate differential on tax-exempt banknotes by 0.5 percentage points, and it will also reduce the amount by which the rates on taxable banknotes are adjusted relative to tax exempt tickets.
The Fed is being cautious in a series of loan programs it has created to support credit markets. He announced the programs in late March and early April when many markets were not performing well, but the announcement of the programs encouraged private investors to lend, reducing demand for Fed loans.