term funding markets. 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. as the deterioration in financial markets increasingly has threatened to hold down spending and employment, the fomc has eased monetary policy, reducing the federal funds rate target by 2 - 1 / 4 percentage points since the turmoil erupted in august. those actions have been intended to counteract the effects on the overall economy of tighter terms and conditions in credit markets, the drop in equity and housing wealth, and the steep decline in housing activity. our objective has been to promote sustainable growth and maximum employment over time. but easier monetary policy will not forestall a period of economic weakness in the near term. experience teaches us that some time is likely to pass between a decline in interest rates and its positive effect on demand. once financial conditions change, time is required for individuals to recalibrate, and then execute, their spending decisions. lower interest rates will not stop, only cushion, the correction in housing markets. easier monetary policy will not – and should not – " bail out " lenders and other investors who made poor choices or failed to protect themselves against the remote, but potentially severe, contingency that house prices would decline or against the much more predictable repricing of credit and liquidity risk. the adjustment in financial markets is part of the process that ultimately will restore credit allocation and market functioning to a sounder, more sustainable basis. what policy can do is attempt to limit the fallout on the economy

market functioning has improved since the strains experienced in march, we have gradually reduced the pace of these purchases. to sustain smooth market functioning and thereby foster the effective transmission of monetary policy to broader financial conditions, we will increase our holdings of treasury securities and agency mortgage - backed securities over coming months at least at the current pace. we will closely monitor developments and are prepared to adjust our plans as appropriate to support our goals. to provide stability to the financial system and support the flow of credit to households, businesses, and state and local governments, the federal reserve, with the approval of the secretary of the treasury, established 11 credit and liquidity facilities under section 13 ( 3 ) of the federal reserve act. the june monetary policy report provides details on these facilities, which fall into two categories : stabilizing short - term funding markets and providing more - direct support for credit across the economy. to help stabilize short - term funding markets, the federal reserve set up the commercial paper funding facility and the money market liquidity facility to stem rapid outflows from prime money market funds. the fed also established the primary dealer credit facility, which provides loans against good collateral to primary dealers that are critical intermediaries in short - term funding markets. to more directly support the flow of credit to households, businesses, and state and local governments, the federal reserve established a number of facilities. to support the small business sector, we established the paycheck protection program liquidity facility to bolster the effectiveness of the coronavirus aid, relief, and economic security act ’ s ( cares act ) paycheck protection program. our main street lending program, which we are in the process of launching, supports lending to both small and midsized businesses. the term asset - backed securities loan facility supports lending to both businesses and consumers. to support the employment and spending of investment - grade businesses, we established two corporate credit facilities. and to help u. s. state and local governments manage cash flow pressures and serve their communities, we set up the municipal liquidity facility. the tools that the federal reserve is using under its 13 ( 3 ) authority are appropriately reserved for times of emergency. when this crisis is behind us, we will put them away. the june monetary policy report reviews the implications of these tools for the federal reserve ’ s 2 / 3 bis central bankers'speeches balance sheet. many of these facilities have been supported by funding from the cares act. we will be disclosing, on a monthly