With a surge in unemployment and rising oil prices as a backdrop, the Federal Reserve announced today it will make $60 billion in short-term loans available to banks this month — half again as much as offered in December — as the credit crunch shows few signs of easing.

To address fears about deteriorating credit markets, last month the Federal Reserve and four other central banks said they would inject more than $90 billion in liquidity into financial markets. The Fed made $40 billion in loans available to commercial banks in auctions held Dec. 17 and Dec. 20.

The auctions — in which the funds available for 28-day loans go to the banks willing to pay the highest interest rates — made it possible for banks to borrow at an average interest rate of 4.65 percent in December.

That’s slightly less than the 4.75 percent rate the Fed charges for short-term loans at the “discount window,” which some banks are reluctant to use because it’s viewed as a last resort. The Fed has cut its target for the federal funds rate — the amount banks charge each other for overnight loans — three times since September, bringing it down from 5.25 percent to 4.25 percent.

Today, with oil prices flirting with $100 a barrel and a new report from the Department of Labor showing unemployment rose to 5 percent in December, the Fed said it would make a total of $60 billion in loans available to banks in auctions to be held Jan. 14 and Jan. 28.

In a statement, the Fed said it plans to continue conducting the twice-a-month auctions “for as long as necessary to address elevated pressures in short-term funding markets.” The amount of auctions to take place next month will be announced by Feb. 1.

The latest numbers from the Department of Labor show the number of unemployed workers rose by 474,000 in December, to 7.7 million. Job growth in service industries, including professional and technical services, health care and food services, was offset by job losses in construction and manufacturing, the Labor Department said, bringing the unemployment rate to 5 percent — the highest since November 2005.

Investors were gloomy about the jobs report, sending the Dow Jones Industrial Average down nearly 200 points in afternoon trading. Stocks in the index have lost about 5 percent of their value since Dec. 24.

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Send tips or a Letter to the Editor to matt@inman.com, or call (510) 658-9252, ext. 150.

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