Today's news is that the Fed has injected $17 billion more into the central banking system. Why is the Fed doing this, and how do they do it? The Fed is trying to put some liquidity into credit markets that are drying up more and more by the minute. Since there are virtually no buyers for some of the bond types that are backed by subprime mortgages, the Federal Reserve has been stepping in. 
The Fed operates a trading desk in New York City where it can buy or sell bonds on the open market. When the Fed buys bonds as it has been in the last few days, the broker-dealer that sold them the bonds then receives cash in return. That cash then flows through the banking system, helping to provide liquidity to the banks who are having so much trouble.
It is interesting to note that even though the overall market has been awful today, some of the money center and regional banks such as Wells Fargo & Company (NYSE: WFC) and US Bancorp (NYSE: USB) have actually been some of the strongest performers, trading higher most of the day so far. The Fed has possibly been able to help these major banks with liquidity, but most believe many of the main mortgage lenders need far more help than they are getting.
Will the Fed continue to inject cash into the market? More than likely they will. The large question though is whether it will be enough. The large majority of economists and traders feel like the FOMC will need to act very soon in order to move the Fed Funds rate lower or this credit problem will overwhelm even the largest mortgage companies and spill out into the economy as a whole.
The economy has some very clear trouble spots right now, and the Federal Reserve must be very careful to not get too far behind the curve or consumer spending will decline rapidly and the economy as a whole could seep into recession. For now it appears these factors are somewhat contained, but the financial markets are pricing in the possibility of the credit market spillout causing something much larger.
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