In a repo, the Fed arranges to buy securities from dealers, who then deposit the money the Fed has paid them into commercial banks.
Early Friday, the Fed said it would buy $19 billion in mortgage-backed securities after the fed funds rate, the rate banks charge each other for overnight loans, ticked above 6%.
In addition to the $19 billion in mortgage-backed securities, the Fed said it was also accepting eligible Treasury and agency collateral.
The central bank did not comment on why it was accepting more mortgage-backed securities than usual, but it's possible that the Fed was trying to remove some of the stigma that these assets currently hold in the financial markets.
The free flow of credit is important to the smooth functioning of any economy. Increasingly restrictive lending conditions can put a damper on people's ability to buy big-ticket items such as homes, cars and appliances. And it can crimp businesses' capital investment and hiring. That reduced appetite by businesses and consumers would slow overall economic activity.
Asian and European stocks fell sharply as fallout spread from global market turmoil set off by concerns about credit weakness in the U.S.
Overnight, the Nikkei 225 index dropped 406.51 points, or 2.4%, to close at 16,764.09 points on the Tokyo Stock Exchange. The broader Topix index, which includes all shares on the exchange's first section, fell 49.88 points, or 3%, to 1,633.93.
In Europe, shares tumbled 3%, their biggest one-day fall in more than four years. London's FTSE 100 stock index dropped 3.7%, the CAC-40 in Paris fell 3.1 and Germany's DAX index was down 1.5%.