I'm very supportive of the Fed's action. I think they've taken a number of innovative steps to provide term liquidity. That's really what the market needs.

From press Q&A, as reported by Market News International

The Federal Reserve has taken a very pro-active stance in response to what we view as economic developments. We have other tools to work in terms of market liquidity, the term auction facility, for example ...

I would discourage you from thinking that simply because, or because of, significant action in the credit market like we had yesterday that suddenly we are going to have a meeting of the Open Market Committee ... and that suddenly we are going to move Fed Funds rates. It doesn't work that way.

As reported by Market News International

Fisher said he disagreed with the view the Fed had been "pandering" to markets in cutting rates aggressively.

"We took the actions that were taken as a group in response to what we viewed as the prospective weakening of the US economy and were driven by economic considerations. In terms of the actions we take on the Fed Funds rate there are other tools we can use, for example the term auction facility addresses liquidity needs, and we will continue to develop our tool box," he said.

"My sense, from my personal perspective, is that 3.5% was a sufficient level. We have moved very quickly to that level. Going further to 3% might create a bit of a counter-reaction. In fact, it did create a bit of a counter reaction - that is long term rates went up including on jumbo mortgages and, of course, the dollar has weakened," he said [when asked about his January dissent].
...
"I trust in the wisdom of my colleagues."

As reported by Market News International

We need to consider whether some of the changes that the Federal Reserve has implemented, such as the Term Auction Facility, should be made permanent.

By allowing institutions to finance with the central bank assets they could no longer finance as easily in the market, we have reduced the need for them to take other actions, such as selling other assets into distressed markets, or withdrawing credit lines extended to other financial institutions, that would have amplified pressures in markets. These measures—the Term Auction Facility and swap arrangements—have had some success in mitigating market pressures, in part by providing a form of insurance against future stress. We now have in place a cooperative framework for liquidity provision among the major central banks. And we have considerable flexibility to adjust the dimensions of these liquidity tools. We will keep them in place as long as necessary, and continue to adapt them where we see a compelling case to do so.

The TAF has been successful. ... We will continue using that tool for quite a while, as long as is necessary.

From Q&A as reported by Reuters and Market News International. He also described the federal funds rate as a "blunt tool."

I would now like to say a few words about the adequacy of our toolkit during periods of financial disruptions. We have several ways to add liquidity to the economy in addition to the normal open market operations: the discount window—extended to term borrowing and the new Term Auction Facility—and foreign exchange swaps to help enhance liquidity abroad. In these operations we accept as collateral assets that others see as less readily marketable. I do not think this adds undue risk since we only lend to qualified solvent institutions and the collateralization rates include appropriate haircuts on riskier assets. In addition, we sterilize the effects of the borrowings on aggregate reserves, so that the liquidity injections are done while maintaining the fed funds rate target. This keeps the funds rate at a level we see as consistent with achieving our announced policy goals.

I would now like to say a few words about the adequacy of our toolkit during periods of financial disruptions. We have several ways to add liquidity to the economy in addition to the normal open market operations: the discount window—extended to term borrowing and the new Term Auction Facility—and foreign exchange swaps to help enhance liquidity abroad. In these operations we accept as collateral assets that others see as less readily marketable. I do not think this adds undue risk since we only lend to qualified solvent institutions and the collateralization rates include appropriate haircuts on riskier assets. In addition, we sterilize the effects of the borrowings on aggregate reserves, so that the liquidity injections are done while maintaining the fed funds rate target. This keeps the funds rate at a level we see as consistent with achieving our announced policy goals.

The Federal Reserve was created in large part to supply liquidity and calm markets in such situations, importantly by assuring banks of a backup source of funding through the discount window.  To enhance the utility of the discount window and encourage its use, the Federal Reserve reduced the spread between the discount rate and the federal funds rate last August, and we made lending available explicitly on a term basis, rather than only overnight.  However, banks were reluctant to use even this more attractive discount facility because they feared that their counterparties would see it as a sign of weakness, and pressures in term funding markets increased.

In December we introduced a new method for banks to borrow from the Federal Reserve against a broad range of collateral--the term auction facility (TAF).  The TAF is an auction through which a fixed amount of lending is offered to the banking system, and it seems to have been successful in avoiding the "stigma" problem and in helping funding markets return to more normal functioning.  Markets were also aided by coordinated efforts to supply liquidity by several other central banks at the same time.

The Term Auction Facility is a useful new part of the Fed's tool kit that should stick around as long as it's needed, he said.

"I do think it had a psychological impact. I also think it had a real impact," Fisher said. "It more specifically addresses the hardening of the arteries in the cardiovascular system of money, as opposed to being a tool to be used for the purposes that we use federal funds rate for."

From press Q&A as reported by Market News International

It does seem to have helped more psychologically than anything else, but I would say yes it does seem to have helped.

From press Q&A, when asked to assess the Term Auction Facility program, as reported by Market News International

In recent weeks, the Federal Reserve has conducted three more auctions (most recently, last Monday) for amounts of $30 billion each. The spread over the minimum bid rate was about 7 basis points for the January 14 auction, 2 basis points for the January 28 auction, and 15 basis points for the February 11 auction; these spreads were much lower than in December, apparently reflecting some subsequent easing in the pressures on banks' access to term funding.

The TAF appears to have been quite successful in overcoming the two problems with conventional discount window lending. Thus far, the TAF appears to have been largely free of the stigma associated with borrowing at the discount window, as indicated by the large number of bidders and the total value of bids submitted.9 Furthermore, because the Federal Reserve was able to predetermine the amounts to be auctioned, the open market desk has faced minimal uncertainty about the effects of the operation on bank reserves; hence, the TAF has not hampered the Federal Reserve's ability to keep the effective federal funds rate close to its target.

Isolating the impact of the TAF on financial markets is not easy, particularly given other recent market developments and the evolution of expectations regarding the federal funds rate. Nonetheless, the interest rates in term markets provide some evidence that the TAF may have had significant beneficial effects on financial markets.

"I guess we still have some tensions left in money markets. It suggests to me that they have mitigated but are not completely absent," Yellen said, when asked about the TAF results. She called the credit auctions a "valuable tool" for addressing these issues.

From press Q&A as reported by Market News International

My baseline forecast envisions weakness in the first half of 2008 followed by improvement in the second half, with inflation moderating from recent levels. The liquidity injections and easing of monetary policy should help housing and financial markets stabilize and avoid an "adverse feedback loop" in which a decline in housing prices fuels financial market volatility with spillover to the broader economy.    

It's a temporary program. Personally I don't think it would be advisable to make it a permanent feature of the way we manage reserves and conduct policy. I think we have adequate tools without it.

From press Q&A as reported by Market News International