The Fed auctioned off the money on Monday as part of a coordinated move by central banks around the globe to thaw frozen credit markets. It will release the auction results at 10 a.m. (3 p.m. British time) on Wednesday.
Demand for the funds and how much banks are willing to pay for them will signal how deep financial distress is and how important a role the Fed and other central banks can play in easing strains.
"If there was no demand for this liquidity, obviously the institution didn't work the way it should have been working," said Torsten Slok, an economist with Deutsche Bank. "And if there was excess demand, of course it was very successful. That is what we will try to learn."
A key barometer of the success or failure of the auction will be how the benchmark three-month London Interbank Offered Rate, or Libor, reacts. As a rising tide of U.S. mortgage delinquencies sparked a global credit crisis this summer, interbank borrowing costs jumped to unusually high levels when compared with the Fed's target for overnight lending.
LIBOR THE KEY
Money market rates fell on Tuesday.
"The best gauge is Libor," said Jan Hatzius, an economist for Goldman Sachs in New York. "It's already come down substantially, and should come down further if the (Term Auction Facility) is successful." Continued...