What does it mean by "the Fed injected liquidity" into the market? US Govt printing more money?

AFX News Limited
US Fed reportedly injects 24 bln usd to calm markets
08.09.07, 11:33 AM ET

WASHINGTON (Thomson Financial) - The US Federal Reserve has reportedly injected 24 bln usd into financial markets this morning, higher than the 15 bln usd markets had expected.

'This in turn suggests that funding issues in the US are running near normal which also suggests that the funds rate will likely tend to move lower over the course of the session. The market appears to be appreciating the benign implications with treasury prices now coming off the boil,' said Kenneth Logan at Thomson IFR Markets says

There was no statement from the Fed or indication of any to come but in the past it has said it would stand ready to inject liquidity if needed during periods of Wall Street turmoil.

Well, the government can always print more money. But it does not simply print money and then dump it from the sky or place it evenly into commercial banks. There has to be some mechanism for getting extra cash into the public's hands.

It accomplishes this by using "Open Market Operations." Look up that term and the term "Monetary Policy" on http://www.investopedia.com . Interesting reading material.

Basically, the Federal Reserve bank has excess cash it keeps out of the system. It will then release this cash into the system to increase the money supply. To do this, the Federal Reserve bank purchases Treasury Bonds from investors on the open market (hence the name, "open market operations"). The Fed receives these bonds and holds them inactive. In return, the Fed transfers cash into the investor's bank accounts, because the Fed gas to pay for these bonds. Walla .... increased cash to the public. The Fed can run this operation in reverse - sell their Treasury bonds to the public and take back cash in exchange - to decrease the money supply. So, the Fed is able to use the free will of investors to influence the money supply.

The Fed also has two other tools at its disposal to affect monetary policy. It can change the discount rate as well as change the reserve requirement for commercial banks. However, the Fed rarely messes with the reserve requirement and prefers to use open market operations and changes in the discount rate to facilitate its monetary policy.

The money supply and interest rates go hand in hand. As the money supply expands, money becomes more available and thus it is less costly to borrow it. As the money supply shrinks, money is scarce and more "rare" ... hence interest rates rise. You can think of interest rates as the cost of borrowing money. In other words, it is more costly to borrow scarce money than abundant money.

learn more by going to www.usa.gov
or www.treasurydirect.gov