Fed Action to Auction Funds for Term

If the Fed's action doesn't incur credit risk to the Fed, they won't be auctioning any funds. The rate for loans for a month collateralised with treasuries is much lower than the OIS for a month and the Fed is requiring that the rates paid on the funds it auctions be higher than the OIS for a month.

So, the Fed is proposing to take credit risk at a price lower than the current market price for that credit risk. That's fine but it would be appreciated if commentators or the Fed would note that instead of talking about "injecting liquidity". The Fed's discount window program was designed to avoid taking credit risk in the extension of credit to banks. If they aren't keeping with that principle, explicit admission would be credibility enhancing.

If the Fed is concerned that 3 month libor isn't as low as they'd like due to the changed relationship to the overnight fed funds rate, why don't they just target the 3 month fed funds (or libor) rate for now, or some average of the overnight and 3 month fed funds rates? It's easy to do and they would be admired for the clarity of their thought and action (not to mention the efficacy of their action). They have been trying with various non-economic methods (jawboning, maneuvers relying on perception changes for their effect) to affect the 3 month rate. Perhaps they should try economic methods.