The Federal Reserve Bank of New York on Monday said it will pump $8 billion into the money markets on Wednesday, November 28 that will not have to repaid until January 10, 2008, a considerably longer term than the usual two-week repayment period.

The New York Fed said it was taking the action "in response to heightened pressures in money markets for funding through the year-end." The bank also said it plans to "provide sufficient reserves to resist upward pressures on the federal funds rate above the FOMC¹s [Federal Reserve Open Market Committee] target rate around year-end."

The Fed action came amid news that the spread between the yield on 10-year Treasury notes and prime mortgage rates has widened from its usual 1.5 points to 2.2 points, indicating further contraction in the availability of credit for prospective home buyers.

The extension of repayment terms to the money markets is not unprecedented. The Fed has taken similar action near year's end several times in the past several years. However, the Fed statement regarding the cash infusion also said, "The timing and amounts of subsequent term operations spanning the year-end will be influenced by market and reserve developments."

The Fed's most recent survey of senior loan officers at lending institutions in October reported that "in the household sector, domestic banks reported, on net, tighter lending standards and terms on consumer loans other than credit card loans, as well as tighter lending standards on prime, nontraditional, and subprime residential mortgages over the survey period."

The New York Fed's action came after a holiday weekend during which retail sales beat expectations, indicating that consumer spending, the primary driver of the U.S. economy, was holding up under the stress of the housing slump. However, The Wall Street Journal reported over the weekend that a Bank of America analysis has concluded that rates on $362 billion in adjustable-rate, subprime mortgages will reset during 2008, which, the paper reported, would likely lead to a further increase in foreclosures. An additional $152 billion in Alt-A and jumbo prime adjustable rate mortgages are also expected to reset in 2008.